TORXF Torex Gold Resources

Dan Rollins VP, IR and Corporate Development
Jody Kuzenko President and CEO
Andrew Snowden CFO
Bryce Adams CIBC
Wayne Lam RBC
Trevor Turnbull Scotiabank
Ryan Thompson BMO
Call transcript

Thank you for standing by. This is the conference operator. Welcome to the Torex Gold Resources Inc.

Second Quarter 2021 Results Conference Call. [Operator Instructions] and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would like to turn the conference over to Dan Rollins, 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 second quarter 2021 conference call.

Before we begin, I wish to inform listeners that a presentation accompanying today's conference call can be accessed through the Investors section of our website at I would 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 Q2 2021 MD&A.

On the call today, we have Jody Kuzenko, President and CEO; as well as Andrew Snowden, CFO.

Following the presentation, Jody and Andrew will be available for the question-and-answer period. This conference call is being webcast and will be available for replay on our website. This morning's press release and the accompanying financial statements and MD&A are posted on our website and have been filed to SEDAR. Also, please note that all amounts mentioned in this call are U.S. dollars unless otherwise stated. I'll 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 Q2 Results call. It's been an eventful first half, highlights are as follows: solid operational performance in spite of ongoing challenges related to COVID and metallurgy issues as we mine deeper in the pits. We're on track to deliver 2021 production and cost guidance. And after months of study, some key strategic decisions have come to ground, which we think bring enhanced clarity and certainty around the path forward for the company.

In terms of the agenda for the call, I will provide a brief reminder of the strategic plan we are working to. Then I will step you through the key business and operational highlights specific to the second quarter. Then I'll turn the call over to Andrew Snowden for some detail on the financials. And after that, I'll provide a progress update on our critical projects, the key decisions that have been landed and close with some commentary relating to the completion of our Board refresh. Dan has touched on the safe harbor language, so I'll move straight to the content, Slide 4. This slide sets out the five pillars of our strategic plan. These remain largely unchanged. We've been very disciplined about executing this plan systematically and have made substantial progress in the first half of 2021. The on that first pillar of optimize and extend ELG, optimization efforts are evident in the continued delivery of ounces to plan.

In terms of extending ELG, we published the updated ELG MRMR in the first quarter, showing a 15% increase in underground reserves over 2019. And we are on pace with our 40,000 meter 2021 drill program at ELG underground.

Additionally and importantly, we've now received board approval to proceed with the pushback at Elliman pit. I consider this to be just right-sized or fit for purpose, spending just enough capital to add approximately 150,000 ounces to that transition period between ELG and Media Luna in late '23, mid '24. There's more detail on that at the end of the call.

On the second pillar of derisking and advancing Media Luna, we have made the risk-based decision to advance the Media Luna feasibility study on the basis of conventional mining and development methods. We're also continuing the Media Luna infill drill program through the second half of 2021, which is completely consistent with the shift in strategy to increase focus on exploration. We're adding another portal on the south side of the river to access the lower portions of the Media Luna deposit. And critically, we've now submitted to the regulators our permit application for the MEA Integra. I will discuss all of this in more detail as we move through the slides.

First, on Slide 5, starting with the as-is business. This slide sets out some key operational and financial highlights for the second quarter. We delivered 118,000 ounces in Q2, placing us at 247,000 ounces midyear. Clearly, we're well positioned to deliver on production guidance of 430,000 to 470,000. That said, I would caution not to expect that we will exceed 470,000 given that grade will trend closer to reserve levels for the second half of this year.

Our total cash costs in AISC at midyear are tracking better than the best end of guidance on both parameters. There were and will continue to be some offsetting puts and takes in these numbers, increased reagent consumption, offset by PTU accruals under new legislation. Both Andrew and I will address this in further detail on the update. The cash generation capability of this asset continues to show itself with a year-to-date ASIC margin of $922 an ounce, over 50% per ounce.

Given that, we were able to add to our bank balance and conclude the quarter with $196 million in cash and no debt, given that that was cleared off in Q1.

So with the large tax and PTU payments behind us in the first half, we expect the second half of the year to deliver healthy cash generation and to add to our total liquidity, which is completely consistent with our plan to cash up ahead of the Media Luna build.

Now on this next slide, I've already briefly touched on 2021 guidance. This slide sets out some of the specifics. Three key takeaways here. Production and total cash costs are tracking within original guidance.

Second, the range on capitalized waste has been increased by $15 million. This is on account of the additional stripping that will be done in the El Limon Pit for the second half of 2021, given that we are proceeding with the pushback. Of note, we're not increasing the ASIC range given that we're tracking beyond best end as of the middle of the year. We're keeping that range at $920 to $970, but I would expect it to come in towards the upper end of that range given the addition on capitalized waste.

Thirdly, that last line there in the chart, though we haven't changed the non-sustaining capital guidance.

We are guiding toward the very upper end of that range as well, given two key additions to the plan.

First, we've allocated $7 million to an expanded infill drill program at Media Luna and another $15 million for a lower portal on the south side of the Media Luna deposit.

Given the broad range that we started with and progress year-to-date on the non-sustaining capital program, we expect to conclude the year at or just above the $150 million guided.

Now while I didn't mention ESG strategic pillar at the outset, we would be remiss not to call out the highlights for the quarter, which sees us on path of continued ESG excellence. Three points here, one in the top left quadrant.

While COVID is settling in for yet another wave in Mexico and case counts are sadly on the rise, we're maintaining our existing approach of adherence to strict protocols, and we've bolted on a specific vaccination program in concert with the local health authorities. At last week's count, we have more than 1,100 people with at least one dose of vaccination. This is critical to safe operation moving forward.

Second, despite a lost-time injury in the quarter, when a diamond drill contractor was struck by a hole, that got tangled up in a drill bar, we closed the quarter with our LTI frequency at an impressive 0.26 per million hours worked, something I'm very proud of, a continued world-class safety performance. And you'll note on the right-hand side of that slide, we've been working hard to upgrade our disclosure to reflect the reality of the good ESG work we're doing on the ground in Mexico. And this is shown up in the improved ratings you see on this slide, notably on the ISS scoring on social and governance, our rating has now gone to 1. Lower is better on the scheme, and so it's the highest score possible.

Turning now to some additional detail around operational performance.

If you step back and look at these quadrants, you can clearly see the operational stability depicted by the bar charts over the last four consecutive quarters. I will draw your attention to a couple of highlights and a low light, starting with the low light first. Average plant throughput for the quarter was just under 12,000 tonnes per day, lower than the last 3 consecutive quarters and definitely not what we wanted. Ironically, it was our best ever performance on delivering the monthly maintenance plan, the team just did an outstanding job with planning, scheduling and execution for each monthly maintenance shutdown in the quarter. The issue was set the metallurgy through the circuit with higher iron and copper and sulfides, forced us to slow down or shut down the plant for a cumulative 60 hours in the quarter. We really did need additional residence time and leach to reach targeted metallurgical parameters with a view to maintaining recoveries and not waste in gold to tailings. On that note, recoveries was a highlight, maintaining 88%, which is 1% above design in the face of those metallurgical challenges is a testament to the strength of our MET program, our systems and the metallurgical team. And the underground team did not disappoint, once again, setting another quarterly record of over 1,400 tonnes per day at an average rate of 7 grams per tonne. This performance certainly supported delivery of ounces in the quarter.

Now this next slide sets out how the unit cost tick shape in the first half here. Two notes. One, you can see in that first-line that our open pit mining costs are up slightly over 2020.

As reported with our Q2 production results, our RopeCon has been down for repair since early June when somewhere was detected on the belt during a routine maintenance inspection.

Given the specialty nature of the equipment, a splice kit had to be sourced from Europe and technicians flown in to install this, we expect it to be back in service by mid-August.

While the team has done an excellent job to maintain production and blending by trucking ore from the pit down to the process plant, this event has driven up our maintenance and rehandling costs.

Second, you can see that processing costs were up to $38 a ton in the quarter or $35 a ton on the half. This is driven by the cyanide consumption. With our historical cyanide costs coming in at the average $2.25 a kilogram, this impact to processing costs was not insignificant.

We have several key initiatives underway to mitigate the higher reagent consumption, including operationally, further refinement of our geomet modeling and what I now call precision blending strategies. And from an engineering perspective, we're looking at the possibility of bringing forward the installation of some aspects of the Media Luna flow sheet to deal with the soluble iron, namely the water treatment plant and the iron flotation circuit. And you can see on that slide, if you look at the third line against the last line, the offsetting costs of the higher reagent consumption versus the new treatment of the PTU given the new legislation that Andrew will detail. On that note, I'll now turn the call over to Andrew for a review of the financial performance.

Andrew Snowden

Thank you, Jody, and good morning, everyone.

So Q2 was another strong financial quarter for us with $22 million of positive free cash flow generated despite the annual Mexican profit sharing payment of $30 million was major in the quarter, and that payment relates to the profit sharing for the 2020 year.

In addition, there were $60 million investment in capital expenditure during the quarter, primarily focused on Media Luna. Slide 12 provides a summary on our financial results. And I wanted to provide some comments on some key drivers in the quarter.

Firstly, we generated revenue of $206 million and EBITDA of $127 million in the quarter.

Although these outperformed consensus, they were both down $25 million on Q1. And this change is primarily sales volume-driven because we sold 18,000 ounces of gold less in Q2 compared to Q1. And that was partly offset by a $40 an ounce higher realized gold price in the second quarter.

Given this lower Q2 sales volume, we closed the quarter with around 10,000 ounces of Dore on hand, and this should support sales volume outpacing production in the second half of the year. On costs, we again reported strong TCC and AISC cost performance with a 50% basic margin in the quarter. There are two key offsetting impacts within this performance, I wanted to just briefly highlight on higher cyanide costs and lower accrued PTU profit sharing costs.

Firstly, on cyanide due to the highest soluble iron levels we were seeing in the ore face consumption rates are expected to be higher in 2021 than initially planned.

As you noted earlier, we saw consumption levels in the first half of the year approximately 2 kilogram or tonnes higher than last year, and we expect higher cyanide consumption to continue through 2021.

For full year '21, I expect this will impact costs by about $15 million to $20 million compared to the initial plan.

Next on the PTU profit sharing.

As I noted on the Q1 earnings call, the tax reform on the Mexican PTU profit sharing payment was enacted in April of this year. From a financial standpoint, the main impact to Torex is the introduction of a cap on the PTU payment at a higher 3-month salary or the trailing 3-year average payment, and this is calculated on an individual employee basis.

So most of our employees, the 3 year average will be the most relevant cap.

And so I expect the 2021 PTU amount, which is payable in Q2 of next year to be approximately $20 million. This is $15 million than initially budgeted.

Looking forward, our guided TCC range of $680 to $720 ounces or an ounce is still a good number as we'll see some higher mining costs in the second half of the year as we mine some slightly lower grade materials, as Jody referred to earlier.

Moving now to Slide 13.

You can see here in the cash waterfall, our cash balance increased by $24 million during the quarter, which was driven by the strong EBITDA performance. In general, the movements on this chart should be self-explanatory. I will highlight a couple of items here.

Firstly, the changes in working capital you see here primarily represent a $30 million PTU profit sharing payment made in the quarter relating to the 2020 year. This was offset by a net collection of about $13 million in VAT.

You'll recall from the Q1 earnings call, I did flag that we were experiencing some administrative delays in VAT collections, and I guided that these would be resolved in July.

In fact, we're able to resolve these administrative matters earlier than expected and saw repayments resume in the month of June, collecting $35 million of outstanding VAT in that month. And we're now caught up to where we expect it to be mid-year 2021.

Secondly, on capital, you'll see on the chart here that we invested $43 million in non-sustaining capital during the quarter. And that was primarily related to Media Luna as we continue to execute on the early works, Media Luna infill drilling and the feasibility study through the quarter. I expect overall non-sustaining capital to continue at the levels you're seeing here in Q2 through the balance of the year.

Turning now to Slide 14. The key takeaway here is that our balance sheet continues to strengthen ahead of the media Luna build despite the significant capital investments I referenced on the last slide.

As referenced earlier, we closed the quarter with cash of $196 million, and we also have available liquidity of $345 million in total when you include our available capacity on the revolving credit facility. And I expect this available liquidity amount will continue to increase as the year progresses.

Finally, on Slide 15, this is just my typical quarterly reminder on the seasonality of our cash flow generation, which you can see here will be cash -- will be back-half weighted. The large annual tax royalty and PTU payments are now behind us in 2021, which will support stronger operating cash flow in the second half of the year. Quarterly payments in the third and fourth quarter will now be focused on two items.

Firstly, tax installments, and I've guided in previous quarters. Tax installments are typically within a range of $7 million to $8 million a month. And we've seen that to be at the higher end of that range in the first half of the year, and I expect will trend towards the lower end of that range for the remainder of the year as taxable income will be impacted by the anticipated higher cyanide and mining costs I referenced earlier.

Secondly, there's the quarterly 2.5% of royalty payments, which will be made, and that approximates $5 million a quarter. And with that, I'll turn the call back to Jody.

Jody Kuzenko

Thanks, Andrew.

Turning now in these last few slides to some updates on our key projects as we work through our strategy and we set the foundation for the future at Morelos. This slide sets out some detail around the pushback at the El Limon Pit. It's been approved by the Board. This will add approximately 150,000 ounces through the transition period from ELG to Media Luna in that critical late '23, early '24 period. The work is already well underway and have already touched on adding the $15 million to non-sustaining capital for strip in the back half of 2021.

Now just a couple of comments about strip.

You can expect it to peak in 2022 and then fall away significantly after that.

Over the 4 year pushback, strip ratio for the pushback only comes in at about 15:1, which results in the remaining open pit life of mine strength at 7:1. Without the pushback, it was 6:1 and now it's 7:1.

Given that over time, costs will ultimately fold into the mining costs for the open pits, we won't detail those publicly. We don't give a zone by zone updates of that nature. I will say, however, that the pushback generates positive cash flow down to $1,300 gold, so it was a sensible business decision, and I think of this as a profit-making insurance policy. These pushback ounces will be incorporated into a multiyear production outlook that we plan to release to market in the coming weeks.

Additionally, on this slide, you'll see some information about the second focus area of the strategy to ensure a smooth transition from ELG to Media Luna. And that is continued exploration, development and mining of our ELG underground.

So there are two items of note here.

First, we're progressing on our portal three. And second, we're advancing our exploration program as planned. We've now transitioned to a focus on step-out drilling through the back half of 2021. A reminder that, that program was 40,000 meters at ELG underground for this year.

Now, this next slide, there's lots of text on it, but it sets out really three key additional developments on our projects first. After what amounts to a few years of study, we've made the decision to advance the Media Luna feasibility study on the basis of conventional mining methods and not Muckahi. There were many and varied considerations around this decision-making. These included: first, the absence of any meaningful upside associated with deploying the technology, either on an economic analysis, through the lens of IRR and PV CapEx or OpEx, or on scheduled considerations.

We also consider the stakes involved for Torex, while not our only operating mine in Guerrero, Media Luna will be a primary source of feed starting in 2024, and it's a big mine.

We also consider the results of the test program at El Limon Deep, which just concluded specifically the rates achieved on development, both laterally and on the steep ramp and the rates achieved with stoping and backfill. This program, this test program showed us that there is process improvement and engineering to be done on this technology.

We also considered risk mitigation in the event that the technology didn't perform quite to expectations given its level of maturity.

Specifically, for Media Luna, once two steep ramps are driven around that deposit, there is really no plan B without significant cost or schedule disruption.

So, rather than to form the new tech will consider including in the upcoming technical report, a Muckahi case at EPO. EPO is a smaller adjacent deposit outside of Media Luna. If we do consider this in the technical report, it will be at the PEA level.

For the second half of 2021, no further funding will be allocated to the Muckahi testing. We guided to spend $8 million on the program in this year, and that has been spent. Instead, we'll spend additional non-sustaining capital through the second half of 2021 on other items that will derisk and advance Media Luna, and those are noted on the right-hand side of the slide. $7 million to continue to infill drill, we're really just keeping the 8 drill rigs turning for the rest of the year and expanding the 2021 program from 44,000 meters to 83,000 meters. And will add $15 million for an additional portal on the south side of the river into the lower part tunneling of the Media Luna deposit. This is important because it will enable us to open up the entire lower portion of that deposit, so we have enough development to support a successful ramp-up. And this tunnel at the lower part of the deposit has the additional upside of positioning us to continue tunneling from south to north to meet up with Guajes Tunnel coming in from the other side. This provides mitigation for a key schedule risk in the development of Media Luna.

Now this last slide, no text, lots of pictures that includes some photographs of various aspects of development of Media Luna. In the upper left, you can see a picture of the mono rail based equipment dumping waste at Guajes Tunnel. And in the bottom right, you can see the portal prep work for the south portal upper is well advanced, and we expect to color the portal this quarter.

Finally, a word about governance.

Our Board refresh has concluded and was endorsed with overwhelming support of our shareholders at the AGM. Tony Giardini, Jennifer Hooper, Jay Kellerman and Rosie Moore have officially assumed their positions. Rick Howes has also stepped to the role of independent Chairman of the Board. I'm completely confident that we have the right mix of skills around the table to deliver Torex' second act. With a new board and some key strategic decisions behind us, our long-term plan is coming together nicely, and we're just going to get on doing what we do best, which is executing on the plan. With that said, subject to any questions, I will turn the call back over to Michel.


We will now begin the question-and-answer session. [Operator Instructions].

The first question comes from Bryce Adams of CIBC.

Bryce Adams

The 150,000 ounces in the pit layback. Can you comment on the grade of those ounces? Is that in line with the reserve grade?

Jody Kuzenko

Yes, that's right, price. It's in line with the reserve rate of the pit.

Bryce Adams

Okay. No big change there. The next question was just on the Guajes Tunnel.

With the changes to the conventional mining at Media Luna conventional Mining and the feasibility. Does that impact your advance rate in that tone at all? Or are you still targeting the 10 meters per day in the back half of the year?

Jody Kuzenko

Yes. We're still targeting the 10 meters a day, Bryce, the decision not to advance the Media Luna feasibility study on the basis of the Muckahi technology. Doesn't change the process plan for advance in the Guajes tunnel using the monorail based technology. The risk profile on those two things are materially different. We're driving laterally, not on a steep ramp. We're not drilling at the face with the monorail-based drilling. We're using a 3 boom jumbo that's wheel based, and we're not using the flushing.

We are instead using a haggloader and loading onto a conveyer and then jumping into the boxes to move it out. We think that system taken all together, once we get it up and running, will deliver an advanced rate that exceeds conventional advance rates, and we're still targeting the 10 meters a day. Whether we get there is another question.

Bryce Adams

Got that.

So still a hybrid approach there. But maybe with the change to conventional mining at Media Luna, is there any design change to that tunnel, the profile size of the tunnel? Could you make it smaller? And would that help you advance rates?

Jody Kuzenko

No, we're not changing the size of the tunnel. It's 6 by 6.5 meter, and we're keeping it that way. The decision to advance Media Luna on the basis of conventional technology doesn't change the size of that.

Bryce Adams


Just on the cost profile, you guided to all-in sustaining costs in the high end, upper end of the range. Is that -- when you say that, do you mean that all-in sustaining costs for the full year will be in the high end or for the second half? Because if you're tracking at $874 for the first half, for the full year numbers to be at the high end, they're going to need to be much higher than the high end of the range for the second half? How should we be looking at that?

Andrew Snowden

So Brent, I mean, your initial -- Andrew here, your initial comments were correct in that it's -- we're guiding that we'll hit the range for the full year or the upper end of the range for the full year. And you're right, that means the second half of the year now will have a higher cost profile or high ASIC profile. And one key driver for that is the additional stripping costs and sustaining costs related to that that Jody referred to earlier related to the pushback.

Bryce Adams

Is there anything else other than the stripping costs? Because if even adding in that extra $15 million strip, I just -- I'm not sure I can quite get there.

Andrew Snowden

Well, so the second driver, which I referred to was around some higher mining costs in the second half of the year.

And so we are expecting that to trend upwards in the second half because of the lower grade that we'll be mining through the back half of this year.

Bryce Adams

Okay. I'll take another look at that. My last question is just on the underground performance. It's been good. Can you remind me, is that still with the contractor? Or is it owner mined? And if it is where the contract, is any -- I think there was, at some point, some thoughts to changing to owner operator?

Jody Kuzenko

It's still a contract mine, Bryce, and there are still those slots.


Our next question comes from Wayne Lam of RBC.

Wayne Lam

Just curious on the cyanide usage. The usage this quarter is kind of a run rate that we should be thinking about as we move along and into the later years as well. It seems to be relatively high relative to what you guys were doing last year.

And so just curious if we should kind of model that kind of cost impact going forward?

Jody Kuzenko

Yes, the usage for this quarter was just over 6 kilograms a tonne. Last year, you'll recall that once we implemented that oxidation program through release, we rounded out the year at about 3 kilograms a tonne, which is where we want it to be.

Moving forward, given the efforts on blending, et cetera, I think it's probably safe to model in the 5 kilograms ton range, and that comes with a caveat. If we're able to land the aspects of the Media Luna sheet to deal with that soluble iron, then that number will tank significantly.

And so the question is, can we do it? What will it cost? How fast can we pull it forward? And does it make any sense to do so? And as I said in my commentary, that's under investigation at the moment.

Wayne Lam

Okay. Perfect. And then just curious on the cyanide and reagents themselves. Have you guys been seeing any cost inflation on that front?

Jody Kuzenko

No. Actually, we're holding pretty well at $2.25 per kilogram, one interesting development that I didn't mention in the commentary is that we're looking at using an aggregator, an aggregator in the country on cyanide supply. If we can get together with a couple of the other mining companies to support us in driving down unit costs, we'll certainly explore all options associated with that.

Wayne Lam

Okay. Great. And then maybe just moving to Muckahi.

As you guys did the testing over the past couple of years.

Just curious, if you had more specific detail on where there were areas of further optimization relative to what was outlined in the PA?

Jody Kuzenko


I think the areas of focus for further optimization will be steep ramp development, loading the muck boxes on a steep ramp and testing the loading to muck box integrated aspects of the system.

So the commentary on Muckahi, I want to be clear, isn't any kind of commentary about the potential of the technology, its commentary about where the technology is and the massive stakes associated with deploying that technology at Media Luna for Torex.

Wayne Lam

Okay. Perfect. Understood. And then maybe just lastly on the lower portal. I'm just curious when that decision was made to implement that? And I guess, given that you guys hadn't increased the non-sustaining capital guidance, was there some kind of offset to that? Or were you guys just trending towards the lower end of range for the year? That decision on the South Portal Lower was under investigation for the first half of this year. We had been carrying it as an option, depending on how the decision laid down with conventional mining versus Muckahi mining. And we've been trending lower on the nonsustaining spend for the first half of the year, hence, the guidance towards that $150 million range with the addition of sub portal lower and the continuation of the infill drill program.


Our next question comes from Trevor Turnbull, Scotiabank.

Trevor Turnbull

I just had a couple of follow-ups, I guess, further on the Muckahi. I understand you have kind of used up the budget for test work on it this year. And obviously, there's further work that does need to be done in terms of optimizing it and kind of testing its capabilities.

So I'm kind of wondering how does it move forward from here? Or will there still be work done with Muckahi and kind of what's the schedule for continuing to kind of optimize that?

Jody Kuzenko

That's under assessment for us right now, Trevor. What we did know for sure is that given that we've used the $8 million for this year, and we had higher nonsustaining capital priorities for the back half of 2021, given the strategic priority to de-risk and advance Media Luna, we're just going to take a pause on it. If we pick it back up in 2022, we'll certainly let folks know.

Trevor Turnbull

Okay. And I heard you talking to Wayne about it and that you're not drawing any conclusions about the potential going forward. But one of the comments, I was curious if you could elaborate on a bit, and that is that aside from the risks associated with trying to implement it and keeping Media Luna on schedule.

You mentioned that it didn't -- there wasn't a strong case on the financial side. And I was just wondering, are the costs associated with Muckahi not really coming through the way that you had anticipated potentially in terms of -- because I thought that Muckahi -- part of its appeal was the ability to actually be a means of cost savings in terms of development. I just wondered if you could comment a bit on the financial aspect?

Jody Kuzenko

Yes. I mean I think that appeal is still there.

As I said, there's lots of potential in the technology. And as you know, Trevor, I mean, costs are rolled up on the basis of assumptions, how fast you go, what the advance rates are, how fast you can clear the muck from the face.

And so we had to use the data from the test program to formulate the assumptions to build up the mine plan to roll up IRR from which comparisons were made from the Muckahi case to the conventional case. I won't give out details on that, but I will say when we ultimately did the IRR comparison between the conventional case and the Muckahi case, that big differential that you saw in the PEA closed substantially.

And so I do think there remains upside on Muckahi depending on what it's able to achieve in either test or small mine deployments in the future, but the assumptions that we used sort of negated what the upside could be, on either cost or schedule, both of which are important to us.

Trevor Turnbull

No, I understand. And obviously, until it's running as well as you would like, obviously, the costs aren't going to reflect its potential. Then my last question, sort of Muckahi related, but not really is just on the EPO deposit that you did mention as a place where you might still potentially find use for Muckahi. I was just wondering, can you tell us a bit more about that? You said it was separate from Media Luna, but similar. And I just don't remember hearing a lot about that before. And I was curious if you could give us a bit more detail.

Jody Kuzenko

Sure. EPO was in the PEA. It's about an 8 million ton resource, a little lower gold equivalent grade than Media Luna, right around 3.5 grams per tonne gold equivalent. It's literally a right turn off of the Guajes tunnel, south of the Balsas River.

And so that, to my mind, Trevor, is still a potential for the Muckahi technology depending on its evolution over the next couple of years. That's deprioritized for us as it relates to the development of Media Luna, but we're certainly keeping the possibilities open to tuck that in later, smaller orebody, potential testing ground and something that we have ready access to in the mine plan after Media Luna.

Trevor Turnbull

Okay. I understand. Well, you've made a lot of big decisions this quarter and a lot of good things to see.


Our next question comes from Ryan Thompson of BMO.

Ryan Thompson

I think most of my questions got asked, but maybe just one on the RopeCon. It sounds like maybe a couple of weeks of slippage on getting it repaired. Can you just sort of remind us, is that RopeCon going to be used throughout the life of the ELG pits and how that ties into the pit layback?

Jody Kuzenko

Yes. I mean, we'll continue to use the RopeCon through as the likes of the ELG pits, Brian. That's the short answer to the question. And yes, some slippage in the schedule. I mean, it's a highly, highly individualized piece of equipment, threw pulled it over top of that and start seeing splice kits from Germany and getting the right personnel on the ground after they've been COVID cleared and COVID tested, it was a bit of a trick.

And so we're looking at mid-August now to get that back up and running. I will say this, we've ordered 3 splice kits, not one.

So in the event that there's any sort of wear detected in the future, we have that on hand.

Ryan Thompson

Got it. Perfect. No, totally understandable on -- with everything that's going on in the world with COVID and whatnot. Maybe just sort of shifting gears here to the balance sheet. Can you just talk a little bit about the balance sheet? Are you comfortable as you sort of progress the feasibility study work on Media Luna? Are you seeing any sort of inflationary pressures coming through in the feasibility study? And is there any need to sort of walk in prices or anything like that as you continue on your work there?

Andrew Snowden

Yes, Ryan. I mean, overall, from a capital cost perspective on Media Luna.

We are seeing some inflationary pressure there. Obviously, compared to what was previously disclosed within the PEA.

So we are seeing some overall upside. I mean, nothing that I think at this point, would drive us to do anything fancy in terms of kind of locking in certain FX rates or certain commodities.

We are continually looking at hedging as being an appropriate tactic to help manage capital costs looking forward. But I think as you highlighted and I highlighted in my material, we are sitting now on a very strong balance sheet, $350 million of available liquidity and still feel that we can come to believe in a self-fund Media Luna going forward, if that's what we choose to do.

So I think we're in a good position even notwithstanding inflationary pressures that we're seeing across the globe at the moment to be able to execute on that capital project over the next few years.

Jody Kuzenko

And in terms of lock in pricing, Ryan, I'll just bolt-on one additional comment.

As we're entering into contracts on the South side and really putting meat on the bone on our contracting strategy for Media Luna. We're being very careful, a, given that we don't have a construction decision; and b, I'm very, very hesitant to lock in pricing at the peak of pricing, for example, for steel.

And so we're maintaining some optionality around receiving the benefit of price reduction as 2022, '23, '24, move on on commodity-specific contributors like steel.

Ryan Thompson

Got it. Yes. No, I mean, my question was more related to sort of the gold price and locking in the gold price from ELG, but I think Andrew covered that.


Our next question comes from [Spencer Lehman], private investor. Go ahead, please.

Unidentified Analyst

Jody, yes, I'm just a private and I'm a long-term shareholder. I'm not an analyst. And a great report. A lot of it is pretty technical. And I just wondered if you can maybe simplify a little bit from me in sort of layman language. And in regard to this big decision on Media Luna, I think I understand it, except just to summarize it for me simply as far as what are the downsides in not going through with the monorail at this point? I mean, obviously, that's probably wonderful technology and exciting. But doing the conventional way, I can see it as less risk for the company and the shareholders. But what are you giving up with that decision? What's the downside of it?

Jody Kuzenko

So first of all, Spencer thank you for dialing in, and thank you for your holdings. We always appreciate our long-term shareholders because Torex is the kind of company that has a long-term view, driving business value over the long term.

So thanks for that. Quite frankly, I don't see any real downside in not deploying the MUCKAHI technology at Media Luna. Like any decision in business or in life, it's a risk versus reward decision. And given the maturity of the technology, the rewards that maybe would have been available if the technology had been a couple of years advanced weren't readily available to us.

And so we were looking at a lot more risk than potential upside.

So on that basis, that decision was taken. It's really a size of the stakes consideration for Torex.

Unidentified Analyst

Once you do the conventional, could you do the monorail in the future?

Jody Kuzenko

Yes. I mean, interesting that you raised that.

And so we haven't done a lot of down deep drilling below the Media Luna deposit.

And so if, for example, we ramp-in conventionally around that deposit, mine conventionally around that deposit, do some further exploration work down deep, get some interesting drill holes down there, we could definitely do a steep ramp down under that deposit and deploy the Muckahi technology there on a smaller scale.

Unidentified Analyst

Got you.

Okay. A great balance sheet. What's -- with the increased cash now? What's the current book value, equity per share as of June 30?

Andrew Snowden

I don't have that to hand, Spencer, but we can circle back with you on that.

Unidentified Analyst

Well, I think it was $11.7 or something in March, would you say is up to up a little bit more?

Andrew Snowden

In terms of our book asset value, I think it's relatively consistent with where it was at Q1 cash balances increased, but that's been offset from an asset value basis by quite some depreciation during the quarter.

Unidentified Analyst

Okay. It will be out when you get -- when we get all the final -- it's an old-fashioned index, but it's always interesting to know what the book value is. I'm 85 years old.

So some of these things are old fashioned.

Jody Kuzenko

The old fashioned stuff is old fashioned because it works, Spencer.

So we can get back to you with that for sure.


This concludes today's conference call.

You may disconnect your lines. Thank you for participating, and have a pleasant day.