Torex Gold Resources (TXG): Riding the Gold Rally with Operational Leverage and Reserve Growth

The gold market is on a clear upward trajectory, driven by geopolitical instability, inflationary pressures, and central banks' continued accumulation of the precious metal. Against this backdrop, Torex Gold Resources Inc. (TSX: TXG) is positioning itself to capitalize on rising gold prices through a combination of disciplined cost management, expanding reserves, and strategic operational initiatives. Let's dissect why Torex is worth watching in this environment—and whether its stock offers a compelling investment opportunity.

Strategic Reserve Growth: A Foundation for Long-Term Value

Torex's Morelos Complex in Mexico remains its crown jewel, with reserves and resources growing steadily despite the depletion of its high-grade ELG Open Pit. Proven and probable reserves rose by 7% to 5.1 million ounces gold equivalent (AuEq) in 2024, driven by the EPO Underground deposit and Media Luna's consistent contributions.

The EPO Underground, which is set to begin production in late 2026, adds critical mine-life extension, pushing reserves to 2035. Meanwhile, inferred resources at EPO surged by 32% in 2024, signaling exploration upside. This bodes well for Torex's ability to replace reserves and grow production organically—a key advantage in a market where gold majors are increasingly reliant on acquisitions.

Operational Leverage: Low Costs and Rising Margins

Torex's All-In Sustaining Costs (AISC) are a linchpin of its investment thesis. For 2025, management guides AISC at $1,400–$1,600 per ounce AuEq, which, while elevated from 2024's $1,205/oz, is still competitive in a sector where many peers face inflation-driven cost pressures. Crucially, these costs are expected to decline sequentially through 2025, reaching the lower end of the range by year-end as the Media Luna Project ramps up to its designed 7,500 tonnes per day (tpd) capacity.

The math here is compelling: with gold prices near historic highs ($2,500/oz in Torex's 2025 guidance) and AISC likely to trend downward, margins are set to expand sharply. For context, at $2,500/oz gold and a $1,400/oz AISC, Torex's cash margin per ounce exceeds $1,100—a level that few gold miners can match. This creates a powerful tailwind for free cash flow, which Torex aims to turn positive by mid-2025 after final Media Luna expenditures.

Key Operational Drivers: Media Luna and EPO

1. Media Luna's Steady-State Potential:
   The Media Luna Underground, now in commercial production, is critical to Torex's near-term growth. While Q1 2025 costs were elevated due to a processing plant shutdown and delayed sales, Q2 results showed AISC at $1,405/oz AuEq, within guidance. As Media Luna's production scales, economies of scale will further compress costs. By 2026, Torex expects Media Luna to contribute ~60% of total production, solidifying its position as a mid-tier gold producer.

2. EPO's Long-Term Game-Changer:
   The EPO deposit, with inferred resources now at 954,000 ounces, could become Torex's next major asset. An internal feasibility study underway aims to unlock its full potential, with an exploration tunnel to improve drilling efficiency starting mid-2025. If successful, EPO could extend mine life beyond 2035 and reduce reliance on the ELG Open Pit, which is nearing depletion.

Risks and Mitigants

• Cost Overruns at Media Luna: While Media Luna's ramp-up is on track, delays in achieving 7,500 tpd could pressure AISC. Mitigation: Torex's hedging programs (covering $144 million in MXN costs) and gold price assumptions at $2,500/oz provide a buffer.
• Geopolitical Risks in Mexico: Regulatory and community challenges are ever-present in mining. Torex's long-standing relationships with local stakeholders and its focus on ESG compliance (e.g., reduced water usage at Media Luna) help mitigate these risks.
• Gold Price Volatility: A sharp correction in gold prices could compress margins. However, Torex's use of put options ($155 million oz at $2,500/oz) protects against downside while allowing upside participation.

Investment Thesis: A Gold Miner with Asymmetric Upside

Torex's combination of low-cost production, reserve growth, and operational leverage to rising gold prices makes it a standout pick in the sector. Key catalysts include:
- Media Luna reaching steady-state production by mid-2026, driving cost declines.
- Positive feasibility results from EPO, unlocking a multi-decade mine-life extension.
- A potential dividend or share buyback program as free cash flow improves.

For investors, TXG offers exposure to a structural gold bull market while benefiting from a miner that's nimbly managing its costs. At current valuations (~$8.5 billion market cap), Torex trades at a discount to peers relative to its resource base and margin profile.

Conclusion: Torex's Time to Shine

Torex Gold Resources is primed to outperform in a rising gold environment, thanks to its disciplined cost structure, expanding reserves, and strategic focus on high-margin assets like Media Luna and EPO. While risks exist, the company's execution to date suggests it can navigate them. For investors seeking a leveraged play on gold without the volatility of junior miners, Torex offers a balanced, growth-oriented profile. Keep an eye on Q3 2025 results for further confirmation of its cost trajectory—and brace for upside as the EPO story unfolds.

Final Note: Consider pairing Torex with exposure to gold ETFs (e.g., GLD) for added diversification, especially if you believe the gold rally has legs.