Torex Gold Resources Inc.

Thank you for standing by. This is the conference operator, Welcome to TORX Gold's second quarter 2024 conference call and webcast. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may throw a star, then one, on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Dan Rowland, Senior Vice President, Corporate Development and Investor Relations. Please go ahead.

Thank you, Operator, and good morning, everyone. On behalf of the TORX team, welcome to our Q2 2024 conference call. Before we begin, I wish to inform listeners that a presentation accompanying today's conference call can be found under the Investor section of our website at www.torxgold.com. I'd also like to note that certain statements to be made today by the management team may contain forward-looking information. As such, please refer to the detailed cautionary notes on page two of today's presentation, as well as those included in the Q2 2024 MD&A. On the call today, we have Jody Kazenko, President and CEO, Andrew Snowden, CFO, as well as Dave Stefanuto, Executive Vice President, Technical Services and Capital Projects. Following the presentation, Jody, Andrew, and Dave will be available for the question and answer period. This conference call is being webcast and will be available for replay on our website. Last night's press release and the accompanying financial statements in MD&A are posted on our website and have also been filed on CDAR+. Also note that all amounts mentioned in this call are U.S. dollars unless otherwise stated. I'll now turn the call over to Jody.

Thank you, Dan, and good morning to all on the line. Q2 marked another strong quarter of safe, consistent operational results, and I'm pleased to say that we're on pace to deliver production guidance for the sixth consecutive year. With yet another record quarter for realized gold price, our margins are strong, and the cash generation from ELG is fueling us through the last stages of the Medialuna build. While margins have improved quarter over quarter, our costs remain a very sharp focus for the entire team, which Andrew will speak to in more detail when he gets on the call. With the strong production results, we remain in an excellent financial position. With only a minimal drawdown on our revolving credit facility, we've maintained our strategic objective of keeping $100 million of cash on the balance sheet and are fully funded for what remains of the MediLuna project spent. Dave will speak to the project progress in his section, but the headline here is that we're tracking well to deliver on our targets of first concentrate production in Q4 and commercial production in mid-Q1. Before we dive into the quarter, I want to briefly provide an update on where we stand across our six strategic pillars set out here on slide four. As of the end of June, overall project progress for Medialuna sat at 78% complete across engineering, procurement, underground development, underground construction, and surface construction. With engineering and procurement largely complete, our focus now is on ensuring that the remaining deliveries arrive at site on time for the four-week shutdown of the processing plant planned for Q4. Simultaneously, our operational readiness teams are working hard on integrating Betty Luna with ELG to ensure a smooth handover from the project team to the operations team as the project nears the finish line, with mine development and production scheduled to be handed over from the project to the operations later on this month. As I mentioned at the outset, we're delivering on our objective of maintaining a strong balance sheet with available liquidity well in hand to complete the project build. On grow reserves and resources, we've become even further advanced on getting the people we need and the systems in place to deliver on the work of this strategic pillar, which is coming along nicely. You'll recall that earlier in the quarter, we released our multi-year exploration strategy, first one ever, with multiple highly prospective targets identified across the Morelos land package. I'll touch more on that and the specific progress we have made on the ELG underground drilling results that were released during the quarter before the end of the call. On talent, work is ongoing to retain our employees during the MediLuna transition and to continue to hire from local communities. Transitioning our open pit miners to the underground is going well with 200 of the 400 people now placed. and systems are in place for technical training progression across various levels of theory, simulator training, and field training. And last, but certainly not least, is ESG Excellence. In May, we released our 2023 Responsible Gold Mining Report. If you haven't had a chance to read the report yet, I'd encourage you to do so. It's posted to our website. Now to get into our specific quarter results set out here on slide five. With gold production of 229,000 ounces through the first half of 2024, we're well on pace to deliver full year production guidance. While costs have trended above guidance through the first half of the year, we expect them to improve in the second half as the strip ratio comes off in Q4 and as open pit mining winds down even further. Although costs are up slightly quarter over quarter, margins continue to expand with byproduct all in sustaining cost margins increasing to 44% from 41% quarter over quarter, with margins significantly higher than the 38% delivered in 2023. The solid production and strong margins allowed for strong cash generation of $46 million prior to spending on Medialuna. Including $108 million spent on Medialuna, free cash flow was negative, as would be expected in the quarter, at $62 million. However, as I mentioned, our liquidity position remains strong, and we remain very much expecting to return to positive free cash flow mid-next year. Slide 6 is a snapshot of our operational performance in the quarter, with gold recoveries remaining above 90% for the second consecutive quarter, production remained consistent quarter over quarter at 114,000 ounces. Q2 also marked the sixth consecutive quarter of processing rates above 13,000 tons per day in the plant. The bottom left chart shows process grades at similar levels to that of Q1, while the bottom right chart shows that underground mining rates have once again returned above their steady state levels of 2,000 tons per day, and we expect this rate to continue going forward. Slide 7 shows a summary of our guidance for the year. One area to note here relates to CAPEX on the Medialuna project, which you will have seen at the end of July was finalized at $950 million, up from the $875 million we published years ago with the technical report in early 2022. We have been publicly discussing the impact of the strong Mexican peso on Medialuna CAPEX for months. but we're holding off on finally adjusting the upfront project capex until we were very confident in the final number. With 97% of the project expenditures now committed, we saw this as an appropriate time to publish the final forecast. Now, if you normalize for the peso, the $950 million would be $902 million, representing only a 3% increase in capex over the original technical report estimates. Everyone listening will have their own view of the CapEx increase. I personally consider 3% on a 33-month build in this supply chain and inflationary environment to be a pretty massive accomplishment. And importantly, I'm very proud of the fact that aside from the nominal amount we plan to draw on our credit facility, we have funded this project entirely on cash flow from ELG without diluting our shareholders and without giving up future upside at Morelos through a royalty or a stream. It's a pretty significant accomplishment for a mining company RSI. And with that, I'll pass the call over to Andrew to discuss financials in more detail.

Perfect. Thank you, Jody, and good morning, everyone. I'll begin by discussing our Q2 financial performance, which you can see summarized on slide 9 of our presentation. Supported by another record quarter with the gold price and our ongoing focus on cost containment, we achieved a 44% all-in sustaining cost margin during the quarter. And although our year-to-date cost performance is tracking over our annual guidance due to the highest stripping requirements of our mine plan in the first half of the year, as Jody mentioned, this stripping will reduce through the balance of the year, supporting a reduction in our cost performance. I do, though, expect our annual all-in sustained cost performance to trend towards the top end of our annual guidance, though. And there's two real market factors driving this cost pressure. Firstly, the gold price, and secondly, the strength of the Mexican peso. On the gold price, with a market average gold price of $2,200 an ounce through the first half of the year, that compares to a $1,900 an ounce assumption we had included in our guidance. We're seeing as a result of this higher royalty and profit sharing expense. The simple rule of thumb here you can think about is that every $100 an ounce move in the gold price, byproduct cash and all its sustaining costs are impacted by about $12 an ounce. That $12 an ounce consists of about $3 an ounce impacting the government royalties and the remainder due to the mandated profit sharing. On the Mexican peso, we have seen a year-to-date exchange rate of about 17 to 1 through the first half of the year, and that compares to an assumption of 18 to 1 within our guidance. And as a reminder, every one peso change relative to the U.S. dollar impacts annual operating costs by about $10 million. However, as I'm sure you're all aware, the peso has weakened substantially since the Mexican elections in early June and due to other macro political and economic developments more recently. So we can see this cost pressure reversed during the second half of the year. And this morning, the peso is trading about 19.3 to 1. Capital expenditure for the quarter remained above $100 million, obviously primarily focused on MediaLuna. and is expected to remain at current levels through Q3 before declining significantly in Q4, slightly, sorry, in Q4, and then more significantly in Q1 as we achieve commercial production. This level of capital expenditure directly impacted free cash flow, and you can see that in the bottom right-hand chart on this slide, and I expect we'll return to positive levels of free cash flow by this time next year. Moving on to unit cost performance on slide 10, the underlying strength of the Mexican peso had an impact on all of costs during the year so far, with 50% of costs denominated in peso, as I mentioned. In addition, though, to this peso strength, there were other factors at play that impacted costs in certain areas of the business, and you can see these summarized on this slide. Open pit mining costs reflected increased diesel consumption and higher maintenance costs as the fleet approaches the end of its life, with open pits winding down next year. This approach mitigates the alternative of costlier rebuilds of the fleet. Underground mining costs were driven by increased backfill requirements, including a cramped And processing cost increases compared to full year 2023 reflects higher cyanide consumptions through the year to date due to higher levels of copper and iron seen in the ore. And finally, as PTU is directly related to our profitability, the increase compared to last year is correlated to the higher gold price year to date that I mentioned earlier. Turning now to slide 11, you can see our cash balance remained above our targeted $100 million target. level at quarter end, supported by our strong cash flow from ELG, as well as a $55 million draw on our revolving credit facility while we complete the final months of MediaLuna. Other key uses of cash this quarter included the annual PTU payment, which was $24 million this year, and that payment was made in May. And that's included within the change in working capital column within the waterfall chart. In addition, we had quarterly tax payments of about $10 million. Sitting here mid-year with the heavy tax, royalty, and PTU payment quarters now behind us, the second half of the year will be stronger from an operating cash flow perspective as is typical of our cash flow seasonality. Moving now to slide 12, you can see our June 30 balance sheets and liquidity position summarized here, where we ended the quarter with $346 million of available liquidity, with $55 million drawn on our credit facility. Based on current metal prices, we would expect to draw about or up to $150 million of credit on that facility through the year. Similar to last year, as part of our annual credit facility amendment process, we further enhanced our credit facility terms with three key updates. Firstly, we collapsed the $100 million term facility into the revolving facility with total capacity unchanged at $300 million. Secondly, we extended the maturity of the credit facility out a year to December 2027 and eliminated the amortization period with bullet maturity now at that December 2027 date. And finally, we incorporated a $150 million accordion feature allowing for an upsizing of the facility if required, and that's to support strategic priorities beyond MediaLuna. With these enhancements, we continue to remain with solid liquidity and to deliver across our strategic priorities. Turning now to slide 13, this robust liquidity position of $346 million at quarter end more than covers off the $224 million remaining on MediaLuna and our strategic objective of maintaining $100 million on the balance sheet. This funding buffer is expected to further increase through the remainder of the year, given the strong ongoing cash flow from ELG operations. And we did generate free cash flow, excluding MediaLuna, of over $250 million over the last 12 months. And at current gold prices, we expect that cash flow to improve even further looking forward. Finally, touching on hedges, just summarized here on slide 14. Firstly, on commodity hedges, as you recall, we placed purpose-built gold hedges to protect against gold price risk during the media lunar build. These hedges fully roll off by the end of 2024, with now only about 77,000 ounces remaining across Q3 and Q4. We have no plans to add commodity hedges beyond these forwards currently on the books. On foreign exchange, we have added to the hedging book there through the quarter. Firstly, we added some additional Mexican peso collars for Q3 and Q4 of this year, 2024. And in addition, over the last few weeks, we took advantage of recent peso volatility to add about $4 million of monthly collars in 2025 to hedge against movements in the peso on our operating cost exposure. We will consider adding further colors for 2025 when we find opportunities to get prices in line with those experienced prior to the pace of strengthening in early 2023. And with that, I'll hand the call over to Dave for an update on MediaLuna progress.

Thanks, Andrew, and good morning. Beginning on slide 16, I'd like to start off by walking through the details behind the capital expenditure increase for the project, which Jody and Andrew noted has been finalized at $950 million. This represents an 8.6% increase over the initial budget of $875 million. Jody has already spoken to the peso impact, which amounted to $48 million, or 5.5% of the increase. The remaining $27.5 million, or 3% of the increase, is divided between two key areas. Firstly, we have consistently messaged that commercial production would be achieved in Q1 2025. We recently completed a detailed assessment of the schedule and capex, including the expected timing to commission the flotation circuits and time needed to deliver steady state production in the flotation circuits in order to declare commercial production. Based on these results, we expect commercial production to be mid Q1, which has resulted in an additional carryover costs. The second area is related to out of scope upgrades to the regional power infrastructure as requested by the power authority as part of the permitting approval received in 2023. As we see Torex has been a key community member for decades to come, it was the right thing to do to agree to these requests. resulting in an additional $8.5 million to the project budget. The remaining costs, as previously noted, primarily relate to those slightly longer project periods. The overarching message here is that we're comfortably funded by the strong cash flow from ELG to cover these additional costs, so there's very limited risk to the project at this time. Turning to a progress update on slide 17. At the end of June, the project sat at 78% complete across procurement, engineering, underground development and construction, and surface construction. Procurement and engineering are nearly complete, sitting at 89% and 96% complete. All major purchase orders and contracts have been awarded. Engineering teams are focused on finalizing remaining detailed drawings based on receipt of final vendor information and field support for the construction team. All I's are on the remaining e-houses for delivery. Of the eight required for the project, four are now on site. Two are expected to be delivered in August, one in September, and one in early October. If the vendor meets their obligations, all e-houses are expected to be delivered prior to the process plant commissioning in Q4 2024. In reality, if a couple key pieces of equipment had been delivered in June versus July, quarter-end progress would have been closer to 80%. Great progress was made on the installation of the WAHES conveyor belt with the majority of the tables now installed and the belt itself beginning to be fed onto the conveyor. Commissioning is set to begin in late Q3. A noteworthy achievement is to highlight that all underground development is now being executed solely by our TORX workforce. After completing the WAHES tunnel ahead of schedule, we redeployed our teams to begin working on MediaLuna proper, and they're doing a great job in that regard, de-risking the ramp up as our own crews become proficient in the underground. We're tracking a plan with respect to development ore from MediaLuna and expect to commence stope mining later this quarter. Definition drilling for the seven stopes plan for 2024 is now complete and drilling of the 40 stopes plan for next year is on track to be completed by year end. In tandem with the first stope ore, operational control of underground mining at MediaLuna is expected to be handed over to the operations team this quarter. All this with the aim of reducing risk during the initial ramp up period. Finally, on slide 18, I'd like to share some pictures of the work being done at site. The installation of the Wyeth conveyor belt that I just mentioned can be seen in the left-hand picture. On the top right is the conveyor drive located outside the Wyeth tunnel portal on the north side of the Balsas River. At the bottom right photo shows the pacemint construction on the south side of the Balsas River. Steel erection began in May and progress was made on the binder silo and tailings thickener adjacent to the filter building. The plant is expected to be commissioned in Q1 of 2025. With that, I'll hand the call back over to Jodi.

Thanks, Dave. Before we open up the call for questions, I wanted to touch briefly on the exploration updates we provided during the quarter, the first being the multi-year strategy we released, summarized here on slide 20. For the past three years, our exploration strategy has been focused squarely on near-term business needs we had to. First, we wanted to focus on ensuring consistent production from the ELG open pits and underground during the transition from the pits to Medialuna. And second, focus on drilling off EPO with the intent of supporting our fill-the-mill plan beyond 2027. With the first objective complete and the second objective very well advanced, our focus has turned to the broader Morelos property and the prospectivity that we see there in the 29,000-hectare land package. You can expect over the coming years that we'll make many, many references to the exploration pipeline set out on this slide, which really sets the stage for the numerous targets that we see across the property and how we truly expect we'll be mining there for decades to come. The pipeline is focused on three key areas. First, extending the mine life of ELG underground in Medelluna. Second, expanding resources within the Medelluna cluster. And third, advancing targets through the growth pipeline, all with the aim of discovering the next Medelluna. We've enhanced the depth of the exploration team. We've undertaken a technical reinterpretation of geological work done in the region and applied a comprehensive process to evaluate and rank the targets discovered to date. Our goal here is to systematize our ranking process to determine which targets to advance up the pipeline based on geological and economic factors and the company's business priorities. Slide 21 shows where these targets are situated within the Morelos property, with the colors depicting their various stages within the pipeline. What's interesting here about this map is that it speaks to the untapped potential we see across the entire property. Exploration conducted to date has been limited. As I said, only 25% of the property has been explored. We have mined more than 3 million ounces and have 10 million ounces in the resource base, and all of what we've discovered to date comes solely from ELG, the main Medialuna deposit, and EPO. What you can see here in this plan view is that there is incredible potential in so many other areas that we plan to explore thoroughly in the coming years. Recall that $30 million has been set aside for drilling and exploration in 2024. While the level of spending has been slow to start the year as we switched over drilling contractors, the pace of activity is expected to materially increase in the second half, and we plan to complete the full year program by year end. With the return to positive free cash flow next year, I expect we will begin to invest even more in the drill bit over the coming years. And finally, on slide 22, we summarize the initial results of the 2024 drilling and exploration program focused on ELG underground. Currently, this program is in the reserve definition, resource delineation, and advanced exploration stages, depending on what areas of the trends we're drilling. This year's program is targeting the extensions of high-grade mineralization along the identified trends, and the results to date show that we're doing just that. Mineralization has been confirmed beyond the boundary of known resources to the south and at depth at the Alimant-Sur trend, to the west along the Alimant-Deep trend, and to the north along the Sub-Sil trend. This indicates the strong potential to grow resources within our year-end reserve and resource update, potentially further extending mine life, building off the success we had extending mine life by two years in 2023. And this further exemplifies that we continue to see ELG underground as a deposit where we mine a year and replace a year or two year after year for the foreseeable future. And it's just one example of what we think lies ahead as we execute against our new long-term exploration strategy. With that, operator, I'd like to open up the call for questions.

Thank you. We will now begin the question and answer session. To join the question queue, you may press star, then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then 2. First question comes from Wayne Lamb with RBC. Please go ahead.

Yeah, thanks, Maureen, guys. I guess at Medea Luna, I was just curious or wanted to confirm, is the biggest bottleneck now on the electrical with the e-houses or are there any other items or elements of risk that you could see resulting in some sort of timeline delay?

Hi Wayne, Dave Stefanuto here. Yeah, right now our current primary risk is delivery of the electrical gear that actually will be installed within those e-houses. And we've known this has been a risk since the start of the project as we came through the period of COVID. deliveries of electrical gear and technological components, if you will, have been extended. So that's primarily what we've been working on with our vendors, and we've successfully been able to find alternative vendors to mitigate any potential slippages. So, so far we're tracking on par to meet our commissioning timeframes.

Okay, great. And then maybe on the transition of the current workforce to Medea Luna, I guess With half the workforce in place now, is there also a significant number of personnel being brought in externally with existing underground experience? Just given the scale of the underground operation, just curious if you envision any challenges trying to transition a primarily open pit workforce underground and how that might impact the ramp-up.

Yeah, it's a blend, Wayne. I mean, in the lower-level areas of work, like production helpers and production drillers, that is where we are transitioning the open-pit miners into those dots and those stencils, where we need more technology. technical level work or technical supervision, then we're hiring those miners from outside of the company, but still trying to maintain ourselves true to our commitments about hiring in-state and in-country. And there's plenty of talent in-country for long-haul open-stoping. In Mexico, we're certainly among many mines that operate that way there, and so it's a real blend. The other thing I would say about risk relating to personnel transition from the open pits, and Dave touched on it in his commentary. Given that we displaced our development contractor early, we displaced them starting in January of this year at the Medialuna mine, that enabled us to move our own workforce in early. So any bumps, any proficiency issues, any efficiency gains, that we were stumbling with happened through February, March, and April. And now that we've taken that, we feel like we're in very good position as we take over the rest of the mine. And I know the operating team is chomping at the bit here, late August. We're transitioning production and development to the ELG operating team away from the project, which marks our first step in concluding an aspect of the project period and transitioning it to operations.

Okay, perfect, thanks. And then maybe moving to EPO, in the past, you guys have been fairly upfront in disclosing targeted conversion rates like the 50% inferred or the 25% indicated. Are you able to give us an idea of the targeted conversion rates or reserves used as the basis for the internal PFS?

Yeah, I'm going to sit on that one, Wayne. You'll see those results in the first week of September. As you know, we're hosting an analyst day. where we'll showcase EPO and the first reserve we're going to take there, and we'll explain all of the details of that to you then.

Okay, got it. Looking forward to that. Maybe the last one for me. Just wondering, on the cyanide consumption, the usage intensity seems to be trending higher versus the past couple years. Just wondering if that's a function of what you'd seen a few years ago with the increased iron content as you get further down into the pit, and Just wondering if that's kind of been according to plan or also expected to provide some pressure and costs through the end of the year.

Yeah, it's a bit of a double whammy for us, Wayne. It's a function of iron locked in sulfides in the area that we're mining in ED3, which is the pitch that we are predominantly in now. It's also a function of limited feed for blends. We can't mix it up in the way we used to to suppress iron sulfide and soluble copper in the feed. It's almost like what we get is what we have to put through the plant. And so what happens when you do that is that you have peaks and valleys in your soluble iron content and your soluble copper content. And then you have to dose cyanide for the peak. So it's an unfortunate situation. It's going to be remedied right away here soon with the pits coming off and the copper flotation circuit coming on. So we're in short-term pain here on cyanide consumption for the balance of the year, and then we'll open up to some processing optionality as we move forward, and we're going to turn that soluble copper into a moneymaker.

Okay, great. Looking forward to it. Looking forward to the investor day, and thanks for answering my questions.

Thanks, Elaine. The next question comes from Don DeMarco with National Bank Financial. Please go ahead.

Hi, thank you, Operator, and good morning, Jody. So first question, the reporting indicates that commercial production is expected to be declared toward the middle of the first quarter of 2025. Now, should we take this as the inflection point for positive free cash flow? Because I recall previous statements were indicating an expectation to return to positive free cash flow by mid-2025?

That's right, Don. I mean, you should think about those two things a bit separately. In terms of the Declaration of Commercial Production, mid-Q1 2025 is just a refined project schedule outcome, given the work the project team did to refine the CAPEX and refine the the schedule leading up to the declaration of the capex increase to 950. Returning to free positive cash flow as a business enterprise will likely occur closer to mid-25. Recall the seasonality we have in our cash flow. We have big royalty and tax true-ups coming out in Q1. That happens every year. And then we have our PTU payment, which is not insignificant, in Q2. And so the combination of the carryover at CapEx, as we ramp up to commercial production, and the ramp up of the Medialuna mine, together with the big draws on our cash seasonally, normally, in Q1 and Q2, see us feeling quite confident the return to free cash flow will occur middle of the year, as opposed to in a way that's concurrent with the declaration of commercial production.

Okay, that's helpful, because we know that there's going to be some development capex carried over into 2025, but with commercial production being declared, we would assume then that all of that development capex will be spent within Q1, and then Q2 will just be weighed by other factors, as you mentioned, as well as the ramp-up of the mine.

So... Okay. That's the right way to think about it, Don. The one other maybe just item I'll flag, and we will talk about this a little bit at the investor day coming up in September, is the working capital impact of the transition from being a primary Dory producer to producing copper concentrate where the collection terms on those sales are a little bit longer than the collection terms on gold Dory as well. And so that will you know, impact, you know, free cash flow somewhat through that transitionary period in the early part of next year.

Okay. So just closing this thread then, would we then expect maybe a step change in free cash flow heading into Q3 next year if you reach that sort of mid-year target of turning free cash flow positive?

The sort of answer to that is yes.

I think a pretty significant shift in... Okay, great. Well, I'll move on to my next question then. Okay, so the Peso's weakened recently. Can you remind us or quantify the potential benefits for remaining CapEx and OpEx going forward if the Peso remains at the current weakened levels or if it even weakens further?

Sure. And so the... I talked on the earnings script about a one peso impact having about a $10 million impact to operating costs, and so that's the way you should think about that. We've averaged 17 to 1 in the first half of the year. If we were to average 19 to 1 in the second half of the year, that would be an 18 to 1 average through the year, which is exactly in line with our guidance. And so, you know, the average rate in the second half of the year would have to be stronger than 19 to 1, or weaker, sorry, than 19 to 1 for there to be a benefit there. And then on MediaLuna CapEx, we've, you know, I think based on the numbers that we released a couple of weeks ago, every Peso movement there could impact MediaLuna Capital by about $5 million on remaining CapEx. And so that's a way to think about remaining capex. In the past, we talked about $15 million plus, given what we've got left to spend on the project. There's not much opportunity there, but in the range of $5 million. Okay.

So if you're budgeting at a pace of 18 and then it's at 19 now, that implies opex going forward is about $10 million benefit. Is that over how, what period is that, $10 million? And then you also have some hedges with a ceiling of 20. So is that sort of 10 million, does that account for the hedge ceiling and then it maybe diminishes above 20?

Yeah, so two parts to that question. The first part, Don, you know, the $10 million impact is across the full year. And so just to, you know, Recap, a 19 to 1 rate over the second half of the year would result in the average rate for the full year being 18 to 1, which is exactly in line with guidance. You would need a rate that's weaker than 19 to 1 for there to be a benefit compared to our guidance. Then on the hedges, you're right that there is those collars in place through the balance of this year. For 2024 though, the way we've looked at those collars, They're ready to protect media lunar capital. And so that was really the strategy around those collars. The collars we've just entered into over the last week, which were summarized on one of the slides relating to 2025, that was through the lens of managing operating cost risk. And so that's the way that at least we've planned our hedging strategy there. Okay. Thank you, Andrew.

And then just a final question. So Claudia has been in the seat now for a few months. It's still early, but have you met with the new administration? And is there any areas of risk that might be of concern or emerging at this point?

We've had a number of meetings with her administration. Our senior Mexican team has. And I would say, Don, as a generalist statement, I believe we're in for some political tailwinds in the country. Claudia selected a cabinet that has been repeatedly shown to us and characterized to us as technical, capable, business-oriented, willing to enter into dialogue with the mining industry. And so I think that departure from what we've seen over the last six years under the AMLO administration will serve Torex well and serve other Mexican miners well.

Okay. Okay. Thank you for that. That's all for me.

Thank you. The next question comes from Allison Carson with CIBC. Please go ahead.

Good morning. Hi, Jodi and team. Most of my questions have been asked, so I just have one. In terms of exploration, like you said, there are a lot of targets. Can you talk about what you're most excited about and why?

Alison, it's hard to delineate what I'm most excited about, but I would say the areas right around Medelluna, which we're calling the Medelluna Cluster. So that includes Medelluna West, Medelluna East, Todos Santos, and El Naranjo. We're dropping drills in Todos Santos and El Naranjo in Q4 of this year, and we're finalizing an agreement with the local ejido that we need to move into Medelluna East. And the reason I'm most excited about these areas is less about the geology, although our exploration team would tell you that they're geologically very interested. The reason I'm most excited about them is that Anything that we find there will be able to wrap mine plans around and bring them into the mine plan so capital efficiently, given that all of the heavy lift associated with the MediLuna cluster from a CAPEX perspective will be behind us at the end of this year. And so, think that our backfill solution will be concluded. Our PACE plant for Medialuna is designed at 50% capacity. Our ore and waste handling system will be largely done. We'll now just move all of this material in through the Medialuna ore and waste handling system. in through the Waihez Tunnel. Our power solution will be done and paid for. Our water is in place. And so really excited, not only about the prospectivity of what we see there, but about how much business value we can unlock as we execute against our five-year plan, particularly in and around that MediLuna cluster.

Great. Thanks so much. That's it for me. I'm looking forward to the analyst day and getting to see those EPO results. Yeah, thanks. We're looking forward to showing them to you, Alison.

Once again, if you have a question, please press star, then 1. The next question comes from Jeremy Hoy with Canaccord Genuity. Please go ahead.

Morning, Jodi and team, and thanks for taking my questions. Most have been answered. And on EPO, I had some around that, but we'll wait for that investor day. The last one I had was just on costs in 2025 with the introduction of contract labor on site as the transition to underground takes place. You were expecting some increased costs in 2025. Could you just update us on how you're thinking about those costs next year, please?

Hi, Jeremy. Andrew here. I'll take that question. And look, you're absolutely right. 2025 will be a year where we're under a bit more cost pressure. The transitionary year through to media lunar won't be as efficient as later years for sure. You know, the way that I think I would guide you to start thinking about all in sustaining costs is something in and around that $1,300 an ounce level for next year before coming back down in 2026. So that's not a level you should expect it will be sustainable at. That will just be a one-year increase just given this kind of transitionary year before it comes back down to levels closer to that $1,200 an ounce range or below.

Okay, great. Thank you. And just to clarify that, you should be thinking about that gold equivalent as well. Oh, great. Thanks for the clarification.

Since there appears to be no more questions, this concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.