Guerrero Gold Belt

Guerrero Gold Belt (Image: Torex Gold)

Torex Gold (TXG:TSX), a leading gold development company in Mexico, is out with an unfortunate press release this morning confirming 1 labourer at the company and 3 contractors have been reported missing. In total 12 community members that are located in close proximity to the project have gone missing.

As far as we know at this moment everyone is still missing and we do not know the cause behind the kidnappings. Torex has curtailed operations to give the Mexican army the opportunity to conduct its operations. No word from Torex as of yet if or how this will affect the development schedule.

Shares of Torex are lower this morning trading at $1.30 down 8 cents (-5.43%) on 2.61 million shares (at press time).

Torex is in construction at the El Limon-Guajes project located in the Guerrero Gold Belt (GGB) ~ 180 kilometres southwest of Mexico City. El Limon-Guajes is hosts a high grade open pit gold deposit that has 4.95 million ounces (M+I) of gold at a grade of 2.79 g/t. The 21 month construction period on the El Limon-Guajes started on November 1st, 2013 and production is expected to commence in the third quarter of this year. A recent news release increased the CAPEX on the project by $22 million.

The GGB is known as one of the best prospective gold belts in the world for exploration. Goldcorp operates one of its lowest cost producing mines at Los Filos with production expected to be between 265,000 and 290,000 ounces this year. Goldcorp did mention in its 2015 guidance that teh focus for Los Filos will be "continued management of community and security risks in the region and the completion of a new life-of-mine plan to maximize return on investment."

In 2014 Goldcorp was forced to suspend production for 1 month due to land agreement issues with following with the Carrizalillo Ejido. As you can see from the above map Torex's El Limon-Guajes project is located in close proximity to the Los Filos mine. This has had many analysts speculating that Torex could be a potential takeover candidate for Goldcorp.

Goldcorp recently made and acquisition of Probe (January) and Chuck Jeannes, Goldcorp's president and chief executive officer commented "This transaction is consistent with Goldcorp's long-standing strategy of securing growth opportunities in and around our existing districts with a focus on low-cost, high-quality gold production."

Torex does make sense for Goldcorp as a takeover candidate as long as they are comfortable with secuirty/safety and political risks. Of note the last two takeover offers made by Goldcorp have been in Canada (Osisko and Probe).

Canaccord research analyst Joe Mazumdar is out with a research note on Torex this morning with a price target of $1.90.

Read: Torex Provides An Update On Media Reported Security Incidents In The Municipality Of Cocula In Guerrero

Related: Goldcorp's next takeout

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This is not investment advice. All facts are to be checked and verified by reader. As always please do your own due diligence.