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Wednesday, 8 May 2013
Timmins Gold posts best quarter yet, with cash costs down to their lowest levels in over a year
Timmins Gold Corp. (TSE:TMM)(NYSE MKT:TGD) has reported stronger than expected first quarter financial results, proving it can keep costs down as other miners struggle, with earnings and metal revenues rising to record levels as production surged 32 per cent and cash costs improved to stand at their lowest levels since the fourth quarter of 2011.
The gold miner, which produces the yellow metal from its San Francisco mine in Sonora State, Mexico, said earnings for the three months to March 31 more than doubled to US$14.3 million, or 10 cents per share, compared to US$5.6 million, or 4 cents per share, during the same period last year.
Consensus estimates were for earnings of 8 cents per share.
Cash flows from operations, a key industry metric, were $21.8 million, or 15 cents per share, compared to $13.1 million, or 9 cents per share, a year earlier. The latest cash flow per share results also beat consensus forecasts of 12 cents, which analysts at Stonecap Securities attributed to lower than expected taxes paid during the quarter.
Metal revenues rose 29 per cent to $45.9 million, despite a lower average realized gold price, as production and sales volumes jumped.
The company said it produced a record 28,328 ounces of gold, and sold 28,642 ounces, versus 21,532 ounces and 21,235 ounces, respectively, during the first quarter of 2012.
Cash costs came in at US$703 an ounce, in line with Stonecap Securities' expectation of $700 an ounce, and better than both fourth quarter cash costs of US$760 an ounce, and full year-2012 figures of US$747 an ounce.
The company said the decline is due to cost reduction measures implemented last year, including a reduction in mining services cost and in the cost of chemicals, as well as higher grades realized in the latest quarter.
According to Stonecap analyst Brian Szeto's morning report, the cash costs figures are now at their lowest level since the fourth quarter of 2011 - an important fact considering the recent rout in gold prices and ever-increasing industry mining costs.
In fact, in a recent analysts' note from Scotiabank comparing the costs per ounce of various gold miners, Timmins ranked third of 21 gold producers surveyed on fully-loaded all-in costs for the year. This measure covers total cash costs, exploration, capital and sustaining development, as well as corporate and general and administrative expenses and taxes.
The Mexico-focused company also maintained its full year forecast Wednesday, expecting production of between 125,000 and 130,000 ounces at cash costs of between US$700 and US$750 an ounce.
"We had been expecting Timmins to deliver on a strong quarter in Q1/13 and the company did not disappoint," said Stonecap analyst Szeto in his morning note.
"Operationally, the company is ramping up well as it targets to exit the year with a production rate in excess of 30,000 tpd. The next big catalyst for the company is the reserves and resources estimate update in mid-2013 where we should see a substantial increase in the company’s mine life to between eight to ten years."
Indeed, an expansion program is underway at the San Francisco mine, with 2013 drilling to take place until the end of May, and an updated reserves and resource update, together with a new mine plan, anticipated by the end of the summer.
The company produced 94,444 ounces of gold in 2012 from its open-pit heap leach operation, and management is aiming to expand its crushing circuit in its efforts to bring throughput up to 30,000 tonnes per day to meet its full year production target. In March, Timmins said it processed a record average of 19,908 tonnes per day.
Currently, Szeto, which has an outperform rating and a $4.00 price target on Timmins - a premium of 75 per cent on Tuesday's closing price - is expecting 116,000 ounces of production for the year out of San Francisco, including initial production out of La Chicharra - located 2 km west of the San Francisco pit.
The San Francisco gold mine, Timmins' flagship property, is comprised of two pits, the larger San Francisco pit and La Chicharra pit. In the first quarter, a total of 86,023 metres were drilled at the gold property.
"Q1 was the company's strongest quarter to date as evidenced by record profit from operations and earnings per share," said Timmins CEO Bruce Bragagnolo, in the statement Wednesday.
"We added a significant amount of cash to our balance sheet despite a relatively large capital spend during the quarter, mainly related to the infill drilling program which is almost completed," he said, adding that at current gold prices, the gold producer expects to continue to "materially add" to its cash balance throughout the year.
As at the end of the quarter, the company had a cash balance of US$26.9 million, after investing $15 million in exploration and plant expansion in the period. This figure compares with US$24.2 million at the end of the fourth quarter, and $18.4 million in the year-ago period.