Media Luna And EPO Mines Will Expand Gold Production By 2026

Key Takeaways

• Completion of Media Luna and EPO mines can boost revenue and earnings, with future growth and increased cash flow potential.
  
• Diversifying into gold-rich copper concentrate production provides new revenue streams, potentially improving margins and shareholder returns.
  
• Operational risks and increased costs from safety issues, planned shutdowns, tariffs, and exploration strain Torex Gold's financial performance, impacting net margins and cash flow.

Catalysts

Operates as an intermediate gold producer.

• The completion of the Media Luna project, with a focus on ramping up to commercial production and achieving the designed mining rate of 7,500 tonnes per day by mid-2026, could significantly increase Torex Gold's revenue and earnings.
  
• The planned development of the EPO mine, expected to start production by the end of 2026, provides a clear path for future production growth, potentially boosting revenue and cash flows further.
  
• Ongoing exploration and the increased budget of $45 million for 2025 aim to extend reserves and resources, supporting sustainable production and potentially increasing long-term revenue.
  
• The transition to being a producer of gold-rich copper concentrate in late March 2025 offers diversification of revenue streams and new revenue sources, potentially improving overall margins.
  
• The decline in non-sustaining capital expenditures from Media Luna completion allows Torex Gold to pivot back to positive free cash flow, potentially enhancing cash flow and shareholder return prospects through dividend or share buyback programs.

Torex Gold Resources Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Torex Gold Resources's revenue will grow by 2.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.1% today to 19.4% in 3 years time.
• Analysts expect earnings to reach $234.1 million (and earnings per share of $4.87) by about March 2028, up from $134.6 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.8x on those 2028 earnings, down from 14.4x today. This future PE is greater than the current PE for the CA Metals and Mining industry at 11.7x.
• Analysts expect the number of shares outstanding to grow by 0.21% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.1%, as per the Simply Wall St company report.

Torex Gold Resources Future Earnings Per Share Growth

Risks

• The recent fatalities at Torex Gold's ELG Underground mine illustrate the inherent risks of underground mining and potential safety issues, which could impact the company's operational continuity and lead to costs impacting net margins.
  
• The planned shutdown of the processing plant for the Media Luna project tie-in could lead to lower production in the short term, affecting revenues and increasing costs per ounce, impacting net margins.
  
• The company's guidance for 2025 indicates higher anticipated all-in sustaining costs (AISC), which could impact net margins and cash flow if gold prices do not remain favorable compared to forecasts.
  
• The increased exploration budget and costs associated with the development of new projects like EPO could strain financial resources, especially if exploration does not result in significant new resource finds, affecting future revenue and earnings.
  
• The potential impact of tariffs and supply chain disruptions could increase costs for key inputs such as cyanide, affecting production costs and net margins.

Valuation

• The analysts have a consensus price target of CA$40.818 for Torex Gold Resources based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$45.0, and the most bearish reporting a price target of just CA$34.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.2 billion, earnings will come to $234.1 million, and it would be trading on a PE ratio of 12.8x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of CA$32.47, the analyst price target of CA$40.82 is 20.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.