Torex Gold Resources - Delivering Quarter over Quarter into Growth Plan

• Torex Gold Resources, headquartered in Toronto, operates primarily in the Guerrero Gold Belt in Mexico. They began commercial production in 2016 and have since grown to become the second-largest gold producer in Mexico.
• In the previous year, Torex produced 468,000 ounces of gold, showcasing reliable and consistent production with a strong balance sheet and a focus on ESG (Environmental, Social, and Governance) standards.
• The company acknowledges a potential drop in production in 2023-2024 due to declining open pits but is optimistic about the introduction of the Media Luna project and ongoing exploration efforts.
• Torex Gold Resources emphasizes long-term sustainability, with the Media Luna technical report indicating a mine life extension from 3.5 years to almost 12 years. They believe they will mine in Guerrero for decades.
• The company is considering mergers and acquisitions (M&A) for growth, prioritizing assets that complement their existing operations and focusing on disciplined and strategic expansion.

A Solid Investment Opportunity in an Inflationary Environment

Torex Gold Resources (TSX: TXG) is a mid-tier Canadian gold producer with assets located in Mexico. The company has demonstrated consistent and reliable operational excellence and cash flow generation, making it an attractive investment opportunity even in uncertain economic times.

Strong Track Record of Operational Excellence and Cash Flow Generation

Over the past several years, Torex Gold Resources has established a strong track record of meeting or exceeding production guidance and generating robust cash flows. In 2021, the company produced 468,000 ounces of gold, exceeding the higher end of their guidance range. This production generated adjusted EBITDA of over $490 million and all-in sustaining costs (AISC) of $928 per ounce, resulting in an impressive AISC margin of around 50%.

According to CEO Jody Kuzenko, Torex is known for "reliable consistent production cash cash generation and a healthy and strong balance sheet." The company has consistently delivered on its promises, doing "exactly that we said we were going to do." This reliability gives investors confidence that Torex can continue executing on its business strategy even amid challenging market conditions.

Strong Balance Sheet and Funding for the Key Growth Project

Torex has built up a robust balance sheet, ending Q1 2022 with $237 million in cash and no debt. This provides a cushion against inflation and volatility, and funds the development of Media Luna, the company's key growth project.

Over the past two years, Torex intentionally "banked the cash" from its producing ELG mine in anticipation of Media Luna's capital needs. Now fully funded, Media Luna is on track to start producing in 2024, replacing ELG's depleting open pits. The project has attracted a top-notch development team focused on bringing it in on time and on budget. Once Media Luna is online, it is expected to produce over 380,000 gold equivalent ounces per year.

According to Kuzenko, Media Luna's successful development is "mission critical" for maintaining Torex's trajectory of consistent production and cash flow into the future. The project has significantly extended the company's reserves, tripling mine life from 3.5 to 12 years based on just a third of the overall resource. This gives investors confidence in the longevity of the operation.

Proven Operator in a Complex Jurisdiction

All of Torex's assets are located in Guerrero State, Mexico, which presents social and political complexities. However, the company has proven its ability to successfully operate in this jurisdiction.

Torex has taken pains to build strong government and community relations in the area, understanding that earning social license is key to maintaining its operating permits. Initiatives include local hiring, well-paying jobs, industry-leading safety performance, and programs tailored to community needs. This has enabled Torex to earn the trust and respect of stakeholders.

According to Kuzenko, "the ride is earned" in Mexico through consistent operational excellence and maintaining positive relationships. She emphasizes that with the right strategy, Mexico can be a viable jurisdiction for mining investment. Torex itself plans to remain focused on Guerrero given the exceptional geology and its successful track record there.

Prudent Strategy for Long-Term Growth

Following Media Luna's development, Torex plans to transition into a more growth-focused phase, but in a prudent, patient manner. The company will consider M&A opportunities, but is committed to maintaining operational and financial discipline.

Potential deals will target high-quality assets in mining-friendly jurisdictions within the Americas that can complement Torex's existing portfolio. The focus will be on value generation rather than getting bigger for its own sake. Kuzenko explains they have the "luxury of being patient" to wait for the right opportunities at the right time thanks to their reliable financial position.

She also emphasizes Torex's goal is to consolidate to the size needed to remain relevant in the intermediate gold mining space, likely in the 1-1.5 million ounce per year range. But this will be achieved in a "sensible, stepwise way" to balance growth with ongoing cash flow generation.

Overall, Torex Gold Resources represents a compelling investment opportunity, especially for long-term investors. The company exhibits operational reliability, financial discipline, and a prudent growth strategy - key ingredients for success even in today's inflationary environment. For investors seeking gold exposure with less risk, Torex warrants strong consideration.

The Investment Thesis

Proven Track Record of Execution

• Torex Gold Resources has consistently met or exceeded production guidance since beginning commercial operations in 2016. This demonstrates operational excellence and reliability.
• The company generated robust cash flow in 2021, with $490M in adjusted EBITDA and all-in sustaining costs of $928/oz resulting in 50% margins. This shows the assets can generate healthy cash flow even in lower gold price environments.

Fully Funded Growth Pipeline

• Torex's major Media Luna project is fully funded with current cash flows from operations. The $853M capex has been derisked and will add over 350k ounces annually starting in 2024.
• Media Luna has secured reserves until 2033 and tripled the estimated mine life. This gives long-term production visibility.
• Only one third of the Media Luna deposit has been drilled so far, signaling a strong exploration upside that could further extend mine life.

Strong Balance Sheet Enables Flexibility

• Torex Gold Resources ended Q1 2022 with $237M cash and no debt, providing financial stability and flexibility.
• The company can be selective and patient in pursuing M&A opportunities to further add to production and reserves. It doesn't need to rush into deals.
• Torex has the balance sheet strength to wait for good value acquisitions rather than overpaying.

Proven Operator in a Complex Jurisdiction

• All assets located in Morelos, Mexico where Torex has strong community and government relations. This enables the company to successfully operate in a socially complex region.
• Torex has developed trust through well-paying local job creation, social programs, and industry-leading safety performance. This could reduce jurisdictional risk perceptions.

Attractive Entry Valuation

• Torex Gold Resources shares are currently trading near 52-week lows, presenting a compelling risk/reward entry point.
• Investors have an opportunity to gain exposure to a funded growth plan and experienced operator at a discounted valuation.

Torex Gold Resources offers investors production growth, a healthy balance sheet, exploration upside, and M&A potential. The company has executed well operationally, and shares could be primed for a re-rating as the Media Luna project comes online in 2024. For investors seeking gold exposure with less risk, Torex warrants strong consideration as part of any gold portfolio.