Torex CEO targeting growth despite COVID-19, Mexico risks

Jody Kuzenko took the CEO reins at Torex Gold in June at a challenging time for the Mexican mining sector, with companies resuming operations under new health protocols following COVID-19 suspensions.

Torex – whose El Limón-Guajes (ELG) asset ranks among Mexico’s biggest gold mines – is building on a strong health and safety track record as it seeks to protect its workforce from the virus and ensure production can continue, Kuzenko tells BNamericas.

The executive aims to deliver multiple layers of protection in its approach to the pandemic, while maintaining a dialog with communities and authorities.

Looking to the future, Kuzenko’s top priorities include optimizing the ELG underground deposit and pushing ahead with the adjacent Media Luna project, which will utilize Torex’ proprietary Muckahi technology, which involves using monorail systems in underground mining. A further aim is to diversify away from single-asset status through M&A.

BNamericas: What are your aims at ELG?

Kuzenko: We have a spectacular asset. Over every time horizon our overarching focus is twofold, to generate value for shareholders and make a positive difference in society.

The mining industry is in a unique position because we have to go where the metal is, and when you go where the metal is you find all sorts of societal conditions.

In the short-term at ELG we want to continue doing what we’re doing. Firstly that’s generating cash.

Our asset is widely known to be a cash generator, and at today’s gold prices there’s no doubt we can continue to generate significant amounts of cash with the margins we have.

The second thing is to continue to build on our strong culture of safety. As at the end of July we have worked more than 7.5mn hours lost-time injury-free.

We believe our disciplined systems-based approach to safety translates well to production and cost outcomes.

In the mid-term we have a number of important projects under way.

One is optimizing our underground on the ELG side. We have accelerated development of underground mining at El Limón Deep and have recently expanded drilling across several well-supported targets at the ELG underground, both in the sub-sill and El Limón Deep and underneath Guajes.

We have had tremendous success in our underground already. Just in 2019 our underground reserves increased by 140%, and we’re aggressively looking to expand and optimize our existing underground deposit.

The second key area of focus for the mid-term is to advance and de-risk Media Luna, and the third really unique and innovative area is to test our Muckahi technology, which uses monorail-based technology to transport ore and electric conveyors to move it out of the mine.

We think Muckahi has the potential not only to revolutionize mining at Torex but within the entire mining industry.

Relative to conventional mining Muckahi has the potential to reduce capex and opex by up to 30% and CO2 by as much as 95% because it is all electric.

For the long-term we intend to use our three key strategic advantages of operational discipline, dealing with social complexity and Muckahi, to undertake some intelligent M&A and diversify away from single-asset risk and build a multi-asset mining company that aligns with our corporate purposes.

BNamericas: What is the situation in terms of security and community relations at ELG?

Kuzenko: Both are key priorities. We operate in a part of the world that is challenging in many ways, security among them.

We’re focused on the security of our people and our assets. We take that very seriously. We have a number of measures and plans and risk mitigation approaches in place on security, ranging from high-level intelligence to on-the-ground asset security.

Issues of security in Mexico and Guerrero state are inextricably linked to poverty.

Part of our approach to deal with security is to do our part to address poverty. We work hard to provide opportunities for local communities through paying jobs, and have programs that use local procurement where appropriate.

We’re proud that 99% of our workforce comes from Mexico and 70% from Guerrero state. We’re not a company that imports talent. We want to do our part to address poverty by giving local people skills and jobs.

In 2019 we invested over US$13mn in local communities through community agreements and direct investments and what we pay to the fondo minero [Mexican mining fund, which distributes royalty proceeds].

That’s a testament to our commitment to local development to deal with the poverty that underpins security issues.

BNamericas: What are your aims for Media Luna?

Kuzenko: We’re very much on track. Our PEA shows it adding 11 years to mine life and we have only drilled off 25% of the magnetic anomaly. We believe we will have a multi-generation asset with Media Luna.

Feasibility is well underway, and scheduled to be completed mid-2021. Following that construction will begin in earnest on the mine and reconfiguration of our processing plant.

We’re very much on track with permitting and financing.

We have solid relationships with regulators at state and federal levels. We have submitted permit applications and have already been granted three, including the environmental impact resolution for the Morelos property.

In terms of financing our plan is to use cash flows we’re generating at ELG to fund the build of Media Luna.

Other challenges include scheduling risk. The tunnel to the deposit under the Balsas river is 7km long.

Our current plan for advancement is 10m a day, which is very aggressive. We have mitigated that schedule risk by using monorail-based technology and making plans for a south portal to access the deposit from the surface.

A second risk is containing spend. Our 2018 PEA earmarked capex for Media Luna is at about US$500mn, half for underground and half for process plant reconfiguration.

Typically the first number I get from engineers is not the lowest. As we move forward to do our project description reports and finalize trade-off studies we have a keen eye to make sure that not only is initial capex contained but ongoing opex and sustaining capex will be contained as we build this asset.

BNamericas: How has Torex coped with the COVID-19 pandemic?

Kuzenko: COVID-19 has posed two key challenges for us and for all of the mining industry. The first is keeping our people healthy and the second continuing to operate.

In terms of the health of our employees from the very outset we opted for two things, a staged approach and multiple layers of protection.

For example, today we have a three-stage COVID-19 screening process, one stage at the home of employees, the next at the travel hub and the third detailed symptom screening at the gate so we can screen out employees that are showing any symptoms.

We also have a rapid response on contact tracing when we find anybody who has been in contact with someone displaying symptoms, and we isolate as required.

Underpinning our approach has been ongoing and transparent communication with workers, unions and communities.

We have never said COVID-19 won’t come here. We have been very transparent about what the likelihood of COVID-19 arriving at the site is and how we will manage it.

We have introduced COVID-19 clearance testing for people returning to work after having the virus or any symptoms. Now they have to return a COVID-free test before they can come back to site.

We don’t harbor any illusions that these measures will keep us COVID-free. I don’t think that’s an attainable goal line, but we do believe these measures will keep us COVID-resistant.

BNamericas: What are some of the key challenges and lessons you have learnt from COVID-19?

Kuzenko: A key challenge has been maintaining adherence to protocols over an extended period. I have said to my team consistently that COVID-19 will be a marathon not a sprint. We’re tired, the virus is not.

The pandemic has also reinforced the importance of planning.  As early as January when the virus began to hit China, because we source some of our consumables like cyanide from China, we had to begin planning right away to shore up our supply chain.

Finally, COVID-19 reinforced the importance of ongoing communication and dialog with key stakeholders, with employees, contractors, local communities and all levels of government.

We have really built off some of the approaches we have been taking all along and it has allowed us to weather this COVID-19 storm and prepared us to deal with second and third waves, so we’re quite well positioned to manage.

BNamericas: How do you view Mexico as a mining jurisdiction?

Kuzenko: Mexico has a unique set of strengths and challenges. There’s no doubt the country is rich in natural resources. The Guerrero gold belt is truly prolific, and we intend to continue operating there for years to come.

We have a committed team. One of the key challenges in mining is getting 2,000 people working and growing in the same direction, and with the people we have in Mexico it has been an excellent ride.

Regarding the Morena [party] administration, there are areas in which we are very much aligned. President AMLO has been quite clear on his position to eradicate poverty, and on the need to mine in a way that respects the natural environment.

We firmly believe mining can coexist peacefully with the natural environment, and our site is emblematic of that. We have no offsite water emissions, the only air emission is dust.

One of the key challenges is the continuing need for certainty and stability.

Uncertainty is the enemy of investment, and Mexico is a challenging jurisdiction to do business on many fronts.

The more the Morena administration and government at all levels can provide certainty on a wide-ranging set of policy, economic, tax, labor, security, the more ability we have to see certainty and predictability in those policies and the more investment will follow.