What Happens When Costs Match the Selling Price Of Gold ?
Posted: May 15, 2013 Filed under: Speculative | Tags: Business, Gold as an investment, Lake Shore, LSG, Ounce, Precious metal, Share price, Timmins Leave a comment
Map of Timmins, Ontario (Photo credit: Wikipedia)
LAKE SHORE GOLD
(T-LSG) $0.325 n/c
From $ 4.00 two years ago
One look at the two-year chart of Lake Shore Gold shows you how bad things are in the natural resource sector, if you didn’t know already. Lake Shore Gold is not the only story trading at nearly one-tenth of where it was.
The bad part of that is much of the company’s current building and mine development was financed with issues nearly ten times today’s price.
Hard to believe the Timmins Times featured an article on January 22nd with the headline, “Glittering year ahead for Lake Shore Gold says VP Dan Gagnon.”
Well at least their production numbers appear to be going up as their Timmins West Mine is the centre of three mines expected to be in operation
having done 85,000 ounces last year. The article quotes Gagnon is expecting 120,000 to 135,000 this year and 150,000 ounces in 2014. But can they make any money at it?
The suggestion these days is that there’s many mines with costs of production way up at $1250 to $1450 and that doesn’t leave a lot left. According to the Timmins Times article, the suggestion is that their costs of production is between $800 and $875 an ounce. As one looks at the share price, one wonders wouldn’t one? Or is it just that most people have given up on the precious metals sector. Not precious at all anymore.
Lake Shore is important to the folks of Timmins and area as the company has 500 full-time employees, 200 contractors at the mine and 125 other employees working on the expansion projects. And this work tends to pay well, or at least it did.
The very low stock price makes one wonder if there are some tidbits of bad news about to happen. Higher production costs, write-downs or even losses that will be coming out tomorrow at their annual meeting. For sure, it won’t be a bunch of happy people around if anyone even bothers to
show up.
Meanwhile one service suggests that several analysts follow the stock with the average target being $1.17. Really?
When was the last time a speculator made a buck in the precious metals market listening to analysts?
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Timmins Gold Corp.
Posted: March 21, 2013 Filed under: Juniors | Tags: Canadian dollar, Gold, Gold as an investment, Investment, Mexico, San Francisco, Timmins, TMM Leave a commentTMM : TSX-V : C$2.86
SELL
Target: C$2.25
COMPANY DESCRIPTION:
Timmins Gold is an emerging junior gold producer, focusing on the advancement of its San Francisco gold project (100%) in Mexico. Timmins is under the stewardship of Bruce Bragagnolo, CEO, and Arturo Bonillas, President. The San Francisco gold project is expected to produce 100,000+ ounces of gold per year
Investment recommendation
We maintain our SELL recommendation on the shares of Timmins with a revised 12-month target price of C$2.25, up from C$2.00 previously.
Investment highlights
Timmins reported Q4 EPS of US$0.09, in line with our forecast of US$0.08 after accounting for lower depreciation and share-based compensation. TMM reported Q4 sales of 24,241 ounces of gold (down from 25,153 in Q3/12) at a cash cost of US$760/oz (up from US$715/oz in Q3/12). Cash flow from operations of $12.9 million was in line with our forecast; however, higher than expected capex of US$17 million resulted in negative free cash flow of $4 million.
Throughput has finally started to expand at San Francisco and as it increases, the average grade is expected to decline. In 2013, throughput is expected to increase to 24,000 tpd by mid-year with a further ramp up to more than 30,000 tpd as the company brings the La Chicharra pit on stream. The company guided for a gold grade of between 0.75 and 0.72 g/t for the year, with the grade expected to drop to 0.62 g/t once throughput has ramped up to full capacity.
Valuation
We have adjusted our model for the Q4 results and guidance for 2013.
With an updated reserve/resource and mine plan expected to be completed in the summer, we have factored in a 10-year mine life into our valuation of the San Francisco mine. The net impact is an increase in our estimate of peak gold price NAVPS (5%, US$1,850/oz) to C$3.21,
up from C$2.84 previously.
We estimate that TMM is trading at 1.28x P/NAV (5%, spot) and 4.9x 2014E CFPS vs. the junior producer average of 0.67x P/NAV (5%, spot) and 6.6x 2014E CFPS. From our perspective, the shares of TMM look fully valued. We feel that the production and cash flow growth is fully reflected in the shares today and see downside risk potential as costs creep higher with a decline in grade.
We continue to value the shares of Timmins based on a 0.70x multiple to our peak gold price estimate of NAVPS (5%, US$1,850/oz Au).
IAMGOLD BUY Target $21
Posted: October 30, 2012 Filed under: Exploration Companies, Gold, Precious Metals | Tags: August 1 2012, First Nations, Gold as an investment, Iamgold, IMG (company), Matagami, New York Stock Exchange, Timmins, Toronto Stock Exchange Leave a comment
Timmins, Ontario, Canada (Photo credit: Wikipedia)
IAMGOLD (IAG : NYSE, IMG : TSX| BUY, Target US$21.00)
We believe investor sentiment towards the acquisition of the Cote Gold project , which was initially very negative and remains still very cautious, will improve as the company continues to increase the quality and size of the resource and defines economics in the pre-feasibility study expected in mid-2013.
Investment highlights gold porphyry hosted in two principaply felsic to intermediate igneous rock types: tonalite and diorite breccia.
Mineralization is mostly associated with fine-grained disseminated pyrite (and lesser chalcopyrite) and areas of greater silification and albitization. The resource update released October 4 increased the size of the resource and moved a large portion of resource to indicated from inferred.
Based on 208 drill holes, the indicated resource stands at 3.56 Moz grading 0.84 g/t and the inferred resource amounts to 4.66 Moz grading 0.88 g/t. This resource was above a 0.3 g/t cut-off and applied a top cut of 20 g/t. The resource remains open to the NE, SE and at depth. Beyond the effective August 1, 2012 assay cut-off for this resource, the next resource for year-end purposes will include assays on approximately 50 new holes (mostly in-fill) through October 1, 2012.
The infrastructure benfits of the project include nearby power lines – capacities of the two existing lines might make it more ideal to connect directly from Timmins), highway and railway access and ample water.
Management describes good relations with area First Nations. Two First Nations groups will be involved with the project from an Impact Benefit Agreement (IBA) point of view: Matagami (600 people) and Flying Post (200 people). The review of the Project Description will take no longer than 365 days to complete.
Valuation
We continue to value the Cote Gold project on an in-situ basis at $825 mm. Our in-situ valuation is conservative when measured against our scoped DCF valuation at a gold price above $1,750. For example, our NAV at 10%/$ 2,000 is $1.15 billion. (Note: we apply a peak gold price of $2,000/oz for target price setting in the sector.)
Major assumptions:
Capex $1.4 billion (prev $1.1 billion), throughput 50,000 tpd (prev 40,000tpd ), 9 Moz @ 0.85 g/t (prev 6.89 Moz @ 0.90 g/t), 1.25% NSR (0% prev), $17.95/tonne site costs ($16.15/tonne prev), including $1.75/tonne ore, $1.90/tonne waste, 3:1 strip (prev 2.5:1), and $10.50/tonne processing and G&A (prev $9.50/tonne) and start date Q1/18
IAMGold Is covered in your gold investor’s handbook – click here for investment profits and much more detail on the ins and outs of investing in gold
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Timmins Gold Corp. HOLD Target $ 1.65
Posted: August 15, 2012 Filed under: Exploration Companies, Gold, Juniors, Precious Metals | Tags: Canadian dollar, Gold as an investment, Nicholas Campbell, Target price, Timmins, Timmins Gold, United States dollar Leave a comment
Sunrise over downtown Timmins, Ontario, Canada (Photo credit: Wikipedia)
Timmins Gold Corp.
TMM : TSX-V : C$2.11 Hold , Target C$1.65
August 15
• Higher taxes reduce Q2/12 results; maintaining HOLD rating and C$1.65 target
Investment highlights
• Timmins reported Q2 EPS of US$0.04, falling short of our forecast US$0.07 on higher than expected taxes. In Q2, TMM sold 23,499 ounces of gold (previously released) at a cash cost of US$758/oz, slightly higher than our forecast of US$753/oz.
• During the quarter, TMM incurred an income tax expense of US$6.6 million, including US$4.6 million in current taxes. We were forecasting US$2.7 million in current income taxes.
• The Q2 results were largely in line with our expectations. In H2/12, TMM is focused on cost control measures and expanding the throughput at the San Francisco mine. The company is renegotiating its contract with its mining contractor and it has secured a four-year cyanide supply contract at reduced costs.
We have incorporated expected per tonne cost reduction of roughly 13% once the company has ramped up production to 31,000+ tonnes per day.
While we factor in a decline in minesite operating costs over the next 6-18 months, we expect the drop in grade associated with expanded throughput to result in higher cash operating costs per ounce of gold produced.
Valuation
We have adjusted our model to incorporate expected cost improvements, which has effectively been offset by higher cash taxes for the San Francisco mine. Our peak gold price estimate of NAVPS (5%, US$1,750/oz Au) remains unchanged at C$2.37. We continue to value the shares of Timmins Gold based on a 0.7x multiple to our peak gold price estimate of NAVPS, which gives us a target price of C$1.65, unchanged
AMP Gold and Precious Metals Portfolio 