Scotia update buy $3.00Event
■ Torex announced in-fill drill results from the near-surface portion of El
Limon Sur at its Morelos gold project in Mexico.
Implications
■ Highlights of the results include 22.2 g/t over 12.3 m, 7.2 g/t over 34.1
m, and 4.8 g/t over 23.5 m. Torex has submitted today's results for
resource modeling and expects to have an updated resource estimate in
early August. We expect these ounces to be quickly incorporated into
the mine plan following such an update.
■ On Monday, the company shifted 72,000 oz from the end of the mine
life into the 2015 processing schedule, which increased 2015 cash flow
by $56 million. The intention with El Limon Sur is to similarly add
ounces into the 2016 schedule to take advantage of the excess
processing capacity that is available while the mill ramps up to 14,000
tpd. Recent optimization activities have moved the access road to now
run directly beside El Limon Sur, enabling 2016 access.
■ We have not factored in any upside from an accelerated ramp-up in
2016, but would expect to do so pending an updated resource estimate
and incorporation into the mine plan. We currently model average
throughput of 8,500 tpd in 2016 as the mill ramps up to capacity in late
2017. Our net asset valuation (NAV5%) estimate is C$2.85 per share.
Recommendation
■ We reiterate our Sector Outperform rating and continue to have
confidence in the accelerated ramp-up.