Summary
Timmins Gold recently reported third-quarter 2015 financial results.
The company reported a $226.5 million impairment charge and just $900,000 in operating cash flow.
Timmins is running out of cash and has a $10.2 million loan facility maturing at the end of December.
If gold prices don't rise sharply soon, I doubt Timmins will survive in 2016. A few poor moves have doomed the company in my opinion.
Timmins Gold
TGD data by YCharts
Recent Stock Price: $.16
Shares Outstanding: 315.29 million
Market Cap: $51.55 million
52-Week Range: $.14 - $1.27
Timmins Gold (NYSEMKT:TGD) recently reported its third-quarter 2015 financial results, and the results paint a pretty dire situation for the company.
Previously, I said that Timmins was a sell following its Q2 2015 financial results for a few reasons. I was critical of the company's acquisition of the Caballo Blanco project from Goldgroup Mining, as I felt it was a really speculative bet on an early-stage gold project that doesn't even have its permits yet, and project economics are based on inferred resources, which are not actual gold reserves and the lowest confidence category in exploration. These inferred resources are used in the project's preliminary economic assessment. This project requires millions in exploration and development.
I was then critical of the company's $140 million acquisition of Newstrike Capital - while this gives Timmins a very promising project in Ana Paula, it is another early-stage project whose PEA is based on gold resources and not actual reserves, and Timmins will need to spend over $150 million to advance the project to production, which the company simply does not have.
These two moves were done as gold prices continue to fall, so instead of focusing on its existing assets and improving cash flow, Timmins has made a few ill-advised moves in my view.
Adding to this is the company's weak financial results. Last quarter, Timmins reported just $4.6 million in operating cash flow with AISC rising to $1,134 per ounce, but this quarter's results were even worse.
In Q3, Timmins took a $226.5 million impairment on its San Francisco mine due to a decline in gold prices and a change in the mine plan. The company's mine plan now focuses on "maximizing cash flow" and cost-savings efforts include a major reduction in workforce. Timmins produced and sold 23,387 ounces of gold at all-in sustaining costs of $1,105 (compared to realized gold prices of $1,137) and operating cash flow was extremely weak at $.9 million.
The financial situation is worsening as a result. Timmins reported total cash and equivalents of $10.4 million at the end of Q3 2015, down from $50.2 million a year ago. The company has total current assets of $34.4 million and total current liabilities of $40.5 million, giving it negative working capital. Timmins also has a $10.19 million loan facility that matures at the end of this year.
Unfortunately, I think it's too little too late for Timmins. With AISC around $1,100 per ounce, the company will lose even more money in the coming quarter as gold prices are well under $1,100 per ounce. The $10 million loan facility is coming due on Dec. 31, and even if the company is able to refinance, it is burning through cash at a very rapid pace. The only savior for Timmins is if gold prices rise rapidly in a very short period of time, but there are better opportunities out there. I still recommend avoiding shares and would even consider opening a short position here.