CA - Torex Gold: The Media Luna Project Is A Game Changer
2023-10-15 10:13:40 ET
Summary
- Torex Gold's third-quarter 2023 production was very weak, with 85,360 Au Oz, but is still on track to achieve annual production guidance.
- The Media Luna deposit is a significant ongoing expansion for the company, with production expected to start in 2024-2025.
- I recommend buying TORXF between $9.70 and $9, with possible lower support at $8.50.
TORXF Five-Year Outlook (Torex Gold Presentation)
Introduction
The Toronto-based Torex Gold Resources Inc. ( TORXF ) owns the Morelos Gold property in Southern Mexico, comprising its El Limon Guajes mining complex - ELG for short - and the Media Luna deposit, where it holds 100% interest. It is called the Morelos Complex.
On October 11, 2023, Torex Gold announced the 3Q23 gold production, following the 2Q23 results on August 2, 2023.
Note: This article is a quarterly update of my preceding article, published on July 3, 2023. I have followed TORXF on Seeking Alpha since March 2021.
TORXF Overview (Torex Gold Presentation)
Note: The Media Luna deposit is one substantial ongoing expansion for the company. The remaining CapEx was $606.2 million in 2Q23. The company indicated it was well-positioned to fund the remainder of the Media Luna Project.
The Media Luna's first production is expected in 2024 . This production will be added to the 2024 outlook after the company releases the Media Luna Technical Report, which tripled the LOM to 11.75 years. The total project was 35% completed in 2Q23 and should be about 45% in 3Q23.
The mine will produce gold starting in 2025.
TORXF Media Luna Project (TORXF Presentation)
Torex Gold presents the right formula for growth potential, with the Media Luna Project expected to be completed in 2024-2025, with production starting in 2025.
TORXF Media Luna Underground Contribution (Torex Gold Presentation)
Furthermore, I expect the gold price to go higher when the FED signals a definitive pause, which should be coming early in 2024.
TORXF 1-Year Chart Gold, Silver, Copper (Fun Trading StockCharts)
1 - 2Q23 Results Snapshot
On August 2, 2023, the company released its second-quarter 2023 results.
The company posted revenue of $211.30 million , down 10.1% compared to the same quarter a year ago, with an income of $75.3 million , or $0.85 per diluted share.
Torex Gold produced 107,507 Au ounces in the quarter and sold 105,749 Au ounces. However, on October 11, 2023, the company announced the 3Q23 production and indicated that the 3Q23 full results would be available on November 14, 2023.
The 3Q23 gold production was 85,360 Au ounces , and the gold sold was 81,752 Au oz, well below the preceding quarter. Furthermore, the company said that the fourth quarter is expected to be the highest production quarter of the year, and it remains on track to achieve annual production guidance of 440K to 470K oz .
CEO Jody Kuzenko said in the press release:
The third quarter was challenging as the team pushed through the final months of the high strip, low grade phase of the open pit mine plan, which continued to require the processing of lower-grade and stockpiled material to top up the mill. As a result, quarterly gold production was 85,360 oz, which is lower than what was planned.
2 - Stock Performance
The company's performance turned around in early November, as shown in a one-year basis chart. The stock is up 49% , outperforming the VanEck Vectors Gold Miners ETF ( GDX ).
TORXF - Financial Snapshot 2Q23 and Gold Production 3Q23: The Raw Numbers
Note: All numbers are indicated in unless otherwise specified.
| Torex Gold |
| 3Q22 |
| 4Q22 |
| 1Q23 |
| 2Q23 |
| 3Q23 |
| Total Revenues in $ million |
| 209.3 |
| 216.5 |
| 228.8 |
| 211.3 |
| - |
| Quarterly Earnings in $ million |
| 43.9 |
| 34.6 |
| 68.2 |
| 75.3 |
| - |
| EBITDA $ million |
| 128.7 |
| 100.3 |
| 105.7 |
| 110.4 |
| - |
| EPS (diluted) $ per share |
| 0.51 |
| 0.40 |
| 0.79 |
| 0.85 |
| - |
| Operating Cash Flow in $ million |
| 102.4 |
| 132.1 |
| 47.0 |
| 89.6 |
| - |
| CapEx in $ million |
| 68.6 |
| 91.2 |
| 99.7 |
| 124.9 |
| - |
| Free Cash Flow in $ million |
| 33.8 |
| 40.9 |
| -52.7 |
| -35.3 |
| - |
| Total Cash in $ million |
| 339.2 |
| 376.0 |
| 321.9 |
| 285.3 |
| - |
| Total LT Debt in $ million |
| 0 |
| 0 |
| 0 |
| 0 |
| - |
| Shares Outstanding (diluted) in million |
| 86.04 |
| 86.14 |
| 86.40 |
| 86.57 |
| - |
| TORXF Production |
| 3Q22 |
| 4Q22 |
| 1Q23 |
| 2Q23 |
| 3Q23 |
| Quarterly Production Oz |
| 122,208 |
| 116,196 |
| 122,918 |
| 107,507 |
| 85,360 |
| Gold Price in $/Oz |
| 1,715 |
| 1,784 |
| 1,899 |
| 1,960 |
| ~1,935 |
| AISC in $/Oz |
| 1,059 |
| 1,034 |
| 1,079 |
| 1,308 |
| - |
Source: Company News
Torex Gold Resources - Gold Production and Balance Sheet Details
1 - Revenues and Trends: Revenues were $211.30 million in 2Q23
TORXF Quarterly Revenue History (Fun Trading) Torex Gold posted $211.30 million in revenues in 2Q23, compared with the $235.00 million indicated in 2Q22. The net income was $75.3 million this quarter, compared to an income of $70.3 million last year. TORXF posted adjusted net earnings of $37.9 million, or $0.44 per share on a diluted basis. Net income includes a net derivative gain of $14.7 million related to gold forward contracts entered into to mitigate downside price risk during the construction of the Media Luna Project. The adjusted EBITDA was $105.7 million in 2Q23. Unfortunately, the upcoming 3Q23 revenue will be significantly lower . I have estimated the revenue between $156 million and $161 million , down about 25% QoQ, assuming a gold price realized at $1,935 per ounce in 3Q23.
2 - Free Cash Flow was negative $35.3 million in 2Q23
TORXF Quarterly Free Cash Flow History (Fun Trading) Note: Generic free cash flow is the Cash from operations minus CapEx. Torex has a slightly different calculation and deducts the interest paid. Torex Gold indicated an FCF negative $37.4 million in 2Q23. FCF differs since it is a non-GAAP item.
Trailing 12-month free cash flow was negative $13.3 million , and the free cash flow for the second quarter was negative $35.30 million.
The company had a CapEx of $124.90 million in 2Q23, up from $52.50 million in 2Q22. Torex Gold is expected to be FCF negative until the Media Luna is completed.
3 - Torex Gold's Excellent Position. The Company is Net Debt-free
TORXF Quarterly Cash versus Debt History (Fun Trading) Total Cash was $285.3 million at the end of June 2023 compared to $310.7 million in the same quarter a year ago. Available liquidity is $577 million in 2Q23. The company is debt-free , which is a strong advantage. The company is well-positioned to fund the Media Luna Project. TORXF Quarterly Production History (Fun Trading) Solid Gold production in 3Q23 was 85,360 Au Oz , down significantly from 3Q22. The company sold 81,752 Au Oz at a gold price estimated by Fun Trading at $1,935 per ounce. Despite a lower production than anticipated in 3Q23, the company is on track to meet annual production guidance of 440K to 470K ounces. TORXF Quarterly Gold Price History (Fun Trading) 4 - Gold Production Details: TORXF Produced 85,360 Au Oz and Sold 81,752 Au Oz in 3Q23
CEO Jody Kuzenko said in the conference call:
With mining of the higher-grade benches started in late September, a period of heavy waste stripping behind us, and ELG Underground continuing to exceed expectations, we fully expect to achieve full year production guidance in 2023 as we continue to deliver the safe and reliable production our shareholders have come to expect from us.
5 - 2022 Guidance - The Cost of the Media Luna Project is Expected to be lower
The company expects gold production of 440K to 470K AuEq ounces in 2023 at an AISC between $1080 and $1,130 per ounce .
The Media Luna Project CapEx totaled $77.2 million during the second quarter, with a remaining project spend of $606.2 million.
TORXF Five-year Outlook (Torex Gold Presentation)
Technical Analysis (Short Term) And Commentary
TORXF TA Chart (Fun Trading StockCharts)
TORXF forms a descending channel pattern, with resistance at $10.85 and support at $9.40.
Descending channel patterns are short-term bearish in that a stock moves lower within a descending channel, but they often form within longer-term uptrends as continuation patterns. Higher prices usually follow The descending channel pattern but only after an upside penetration of the upper trend line.
The strategy is still the same. The short-term trading strategy is to trade LIFO about 60%-70% of your position until the Media Luna project is completed and keep a core long-term amount for a much higher payday at around $19-$20.
I suggest selling LIFO between $10.75 and $11.5 , with possible higher resistance at $13.55 , and waiting for a retracement between $9.70 and $9 , with possible lower support at $8.50 .
TORXF could experience a breakdown if the gold price loses momentum and crosses the $1,900 per ounce support. In this case, TORXF could retest the lower support at around $8.50 and lower, especially with the weak revenue expected in 3Q23.
Conversely, if the gold price trades back above $1,975-$2,050 per ounce in late 2023, TORXF could do well despite a weak Q3.
Thus, watch the gold price like a hawk.
Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.
For further details see:
Torex Gold: The Media Luna Project Is A Game Changer