***updated with comments from conference call, as well as latest share price data***
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.
"The most important takeaway is that our overall cost of operations are declining, even after a significant ramp-up," CEO Bruce Bragagnolo said in a conference call Wednesday, adding that the company is still reviewing all of its numbers in light of lower gold prices.
"The beauty of our operation is that we have a lot of flexibility. We are continually looking at where we can cut costs and become more efficient, though we can operate at much lower gold prices and still make money."
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 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. Bragagnolo said he predicts the expected increase in mine life will go a significant way to boosting the company's net asset value, with drilling results so far proving successful.
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. Timmins is well on its way - in March, 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 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 Bragagnolo in the statement Wednesday.
In the conference call this morning, the CEO emphasized the company added a signficant amount of cash to its balance sheet despite a relatively large capital spend during the quarter on account of the infill drilling program, and has financed all of its expansion from internal cash flow.
"We started as an 80,000 ounce a year producer in 2010, and this year we're on target for as much as 130,000 ounces. We have funded this all from internal cash flow, and haven't gone to the market to raise equity for the last four years," he said.
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.
Shares of Timmins rose sharply on the back of the results, up 4.8 per cent to $2.39 mid-morning on Wednesday, starting from an open of $2.29.
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