RBC positive comments / Site Visit
This is a tough group to impress so for what it is worth here is the opening comment on thier ( RBC's) ALERTs Report for LSG. They still rate them as under perform how ever........if LSG continues on thier current path I think the "underperform" status is more a result of lower gold price rather than bad management.
December 11, 2013
Lake Shore Gold
Site visit: 2014 focus on improved operations and
a stronger balance sheet
Expected impact: Positive
Lake Shore Gold hosted a tour of its Timmins West and Bell Creek mine
complex yesterday and appears on track to meet the higher end of
production guidance of 120-135koz for 2013. Overall, we were impressed
with (1) progress made on the successful ramp-up of the mill in excess of
the 3,000 tpd capacity, which is expected to continue in 2014; 2) improved
mining grade control to enable a sustained improvement in the processed
grade of ~5.0 g/t; and 3) a solid focus on strengthening the balance sheet
through cash conservation and potential early debt reduction.
Grade improvements expected to be sustained
The company expects the blended average processed grade in 2014 to be
~5.0 g/t, based on 2,300-2,500tpd of ore from the Timmins West mine
and 500-750tpd from the Bell Creek mine. The Reserve grades for each
deposit are 5.2 g/t and 4.1 g/t respectively, and we estimate that a 5.0 g/t
average processed grade would give the midpoint of the new 160-180koz
guidance range at a throughput of 3,000tpd.
In order to sustain recent grade improvements and ensure mining at the
Reserve grades for each deposit, the company has also 1) increased inmine
definition drilling density; 2) made adjustments to in-mine surveying
practices to improve drilling accuracy; and 3) shortened assay result timing
significantly (~2 days vs. >1 week) resulting in more accurate mining of ore.
These efforts have reduced dilution and have positively impacted grades
mined.
Expanded mill on track for a strong performance in 2014
At surface, the completion of the new crushing and grinding circuit as
well as the ore dome is expected to significantly reduce re-handling of
ore, especially during the colder winter months in which frozen stockpiles
had previously negatively impacted productivity and throughput. Further
productivity improvements are also expected overall as interruptions
from construction and commissioning activities cease following the recent
ramp-up of the expanded mill.
Cash flow and early reduction of debt remain a focus
The company previously announced a cash and bullion position of $26MM
as of November 30th, and we estimate that the company could end 2013
at ~$25MM at an average gold price for the quarter of $1,250/oz, which
includes a scheduled $3.6MM payment on its gold loan and completion of
$10MM in remaining spending on its $90MM capex budget for 2013. Lake
Shore Gold's focus in 2014 is early reduction of its $35MM credit facility
which is due January 1, 2015.
Preliminary capex guidance for 2014 was given at $45MM, with $35MM attributed to sustaining
capital, in line with our estimate of $35MM, while $10MM was for tailings facility improvements
and construction of a holding/discharge pond to eliminate use of the water treatment plant.
With ~60% of 2014 mine development completed to date, management noted that it has some
flexibility in sustaining capital spending in order to manage early/scheduled debt repayments
and associated debt covenants while meeting 2014 operating guidance.
As a result of reduced exploration spending in 2013 from a focus on completion and ramp-up
of the mill expansion, the company stated that year-end Reserves are not expected to increase
year-over-year. We would expect a reduced 2014 exploration budget as a result of the focus on
strengthening the balance sheet and improving cash flow. We currently estimate a remaining
mine life of ~8 years for the Timmins West mine complex and ~4 years for the upper, ramp
access portion of the Bell Creek mine.
Lake Shore Gold
December