Basis of article on Torex:
JB: We like Torex Gold Resources Inc. (TXG:TSX) in Mexico. The company's Morelos project is one of the few really high-grade deposits. It is a skarn deposit and recent drill results are shooting the lights out. There also are deposits south of the river. When we visited, it was obvious that the deposit is not confined to Morelos.
There are two issues here. The biggest is political risk. There are some drug bands and crime in the area. The Mexican army is there and Torex has hired security companies. The other issue is whether Torex can build the mines itself. So far management has done well. Torex is well capitalized and has already raised most of the money it needs.
TGR: Torex recently took out a $250 million ($250M) line of credit backed by five banks. Do you prefer to see that rather than an equity issue?
JB: At the current price, definitely. The company recently did another $380M bought-deal financing on top of that. At current equity prices, if a company can secure bank financing at attractive rates, I prefer a bank deal to an equity raising. Equity raising is very expensive.
TGR: How did Torex get the bank financing?
JB: As I recall, it was done by BMO Capital Markets. A bank typically will do its due diligence on such projects. There is still money available for high-quality projects. The taps are not as closed as they were in 2008.
Deposits like Torex and Continental Gold—high-grade deposits, close to infrastructure—are scarce and that makes them potential takeover targets. I would be surprised if these companies have not signed confidentiality agreements with some of the bigger players.