Media Luna’s Long-Term Growth to Benefit All Stakeholders

Q: Having worked in the base metals sector for many years prior to Torex, what do you see as the main differences now that you work for a gold mining company? 

A: In the base metals industry, companies need to be more defensive with their balance sheets due to the narrow margins. At Torex, however, we can focus more on capital allocation and how to support long-term growth using cash flow. For example, we have substantially completed our US$950 million Media Luna Project and began copper concentrate production in  March 2025, with commercial production declared shortly thereafter. As we hit our projected free cash flow inflection point mid-year with completion of Media Luna Project spending, we expect to repay the modest amount of debt drawn quickly, particularly as production ramps up under a backdrop of record gold prices.

This approach allows us to focus on building the Company’s future in a more traditional manner: producing gold, generating cash flow, and reinvesting in future growth. In Media Luna, we funded most of the US$950 million project using our cash flow. After Media Luna, based on current estimates, and assuming the gold price holds, we expect to generate over US$400 million in free cash flow. Our focus now is on allocating this cash to support the company’s growth and benefit our shareholders.

Q: How has your experience in the base metals sector, where margins are narrower, shaped your approach at Torex Gold?

A: The cost management mindset in the gold sector can be challenging when gold prices are as high as they have been recently. This is a key differentiator for Torex Gold, perhaps due to the base metals expertise within our executive team. We apply a strong cost management approach across the company, which has always been central to our strategy. Our goal has never been to maximize net present value (NPV). Instead, we aim to develop a company with a long-term, low-cost profile that can generate good cash flow through any gold price cycle stage. 

When considering effective capital allocation, we are focusing on four main areas. First, we are prioritizing debt repayment. Second, we are investing in the future of our Morelos Complex, particularly through exploration. This year, we increased our exploration budget by 50%, from US$30 million to US$45 million. This investment focuses on proving the potential of our property, particularly around the Media Luna Cluster, an area that will allow us to bring on new mines and production in a cost-effective manner. One example is the EPO mine, which will be the next mine to come from Media Luna. We expect to begin construction in mid-2025. The mine will be low-cost, with a planned production of about 2,000 tonnes per day and a capital expenditure of just over US$80 million. This low-cost approach is possible because we have already invested in infrastructure, including a 7km conveyor, sufficient ore handling capabilities, and oversized electrical and water supply. This infrastructure will help us continue to expand in the area and extend the mine life at the Morelos Complex. 

The third priority is returning capital to shareholders. We have a patient shareholder base that has not yet seen a return on their investment since they helped fund the development of ELG. Now that we have the Media Luna project substantially behind us, it is time to return capital to our shareholders and we plan to announce a return of capital program later this year. The fourth area is growth outside the complex, focusing on M&A opportunities. We aim to expand the business through exploration, development-stage, or operating assets. We are especially interested in opportunities in the Americas which includes Mexico, where we have a competitive advantage. We are committed to acquiring assets at the right price to benefit our shareholders.

Q: What criteria do you analyze when evaluating potential M&A opportunities? 

A: When comparing any potential opportunities, none will appear as attractive due to the great asset we now have. We are seeking an asset with meaningful production, ideally starting from day one or with the potential to reach meaningful production over time. A minimum target of 150,000oz/y to 200,000oz/y is what we consider appropriate. We are also looking for a low-cost operation, one that falls in the bottom half of the cost curve to ensure that we can generate cash flow through any point in the mining cycle. We also focus on assets that can offer district-scale growth.

Diversification is another priority. One challenge we face, particularly from a share price perspective, is the single asset risk. Some shareholders appreciate this, while others prefer to diversify their risk by investing in different companies. However, some shareholders want us to help them diversify that risk because, in their view, we can manage this better than they can. We are thus considering opportunities outside Guerrero, though not necessarily outside Mexico. 

Q: How do short-term share price fluctuations influence Torex Gold’s strategy?

A: There are often short-term impacts on the share price, so management cannot run the business solely to drive share price performance. However, my view is that if we run the business well, making the right decisions, the share price will grow over time. It is necessary to balance long-term thinking with short-term growth, as one will naturally lead to the other. 

It is also important that in addition to our shareholders, we consider all of our stakeholders in our broader strategy, including: our employees, workforce, local communities, and government relationships. If we make the right decisions, all these groups will benefit and we will generate shareholder value in both the short and long-term.

Q: How does Torex Gold ensure that benefits are properly distributed among its workforce? 

A: There is no better way for a mining company to succeed than by aligning the workforce with the company’s success. The typical approach is often to bring in foreigners with experience in a particular role. On the contrary, we prioritize local employment. Mexico has a highly experienced mining workforce. Even in local communities without prior mining experience, there has been a strong willingness to engage and learn. About 70% of our workforce is from Guerrero, 45% from local communities, and 99% of our overall workforce comes from Mexico.

Our employees share in the company's success, not only through long-term employment but also through the profit-sharing (PTU) mechanism. When gold prices and profitability are strong, that success is shared with our employees, which helps motivate everyone to work together to maximize operational efficiency.

Q: What are the Media Luna’s main priorities for 2025? 

A: We released the feasibility study for the Media Luna project in March 2022 and three years later, we are nearing completion. 

The focus now is on completion of our Paste Plant, to produce backfill for the underground mine, which we expect to complete in June, along with connection of our new 230kv substation to the national grid. We are also focused on ramping up underground mining at Media Luna. While the original plan targeted nameplate capacity by 1Q27, projections indicate this could be achieved six months earlier. The company expects to reach 6,500t/d by the end of 2025 and 7,500t/d by mid-2026.