Newsletter Writer Covering TMM.T - His Last Pick MOZ.T @ .80This is from his email:
Timmins Gold - I missed Timmins Gold today on both the US and Canadian exchanges but will be moving my bid higher for tomorrow's trading. The stock has new management, is doing a roll-back on shares so it's no longer a penny stock, saw costs come in better than expected last year, has a world-class project in Mexico that is receiving little to no value, and has more than 20% of their market cap in cash. In addition to this, the technicals are much better than any other junior miners. For this reason I'll be beginning a starter position tomorrow. Timmins Gold operates the San Francisco mine in Mexico and produces just over 70,000 ozs of gold a year at just over $1,000 AISC. This mine is nothing special at all but the company is working on cost optimizing measures there and it contributes reasonable cash flow. My fair value for the project is $70 million dollars as it provides $7 million a year in after-tax earnings using a $1,200/oz gold price. - $70 million Timmins Gold has $35+ million in cash which represents over 20% of its market capitalization. - $35 million The company bought the world-class Ana Paula project off Newstrike Capital a couple years ago for over $140 million US, but I believe they stole the property and my fair value for it is $200 million. The NPV for the project using the old PEA is over $240 million dollars and it's expected to produce 130,000 ozs of gold for the first 5 years at all-in sustaining cash costs under $500/oz. The capex to put Ana Paula in production is $120 M, and the NPV at 5% discount is $248 M US. My fair value for the project as stated is $180 M. The drill results out of the project have been exceptional and I believe the feasibility study may seen even better economics. - $180 million $180 million $35 million $70 million ----------------------- = $285 million My fair value for Timmins Gold is $285 million US currently as they have a mediocre mine, a fair amount of cash, and a world class asset that's currently being valued for significantly less than they bought it out for. The current value for the company is $160~ million and I believe it's significantly undervalued here. If Ana Paula moves into production, I could see the company commanding a market capitalization of $500 million or more as a 200,000 ounce producer. I also believe the company is a takeover target for Ana Paula alone at this valuation, as the suitor could sell off San Francisco for next to nothing if they didn't want to deal with it's lackluster operating performance, take the cash, and still take over Ana Paula for less than $100 million USD after cash and San Fran~ sale. I consider Timmins Gold to be speculative so I'll be only putting on a 2.5% position while I see how the company performs and how they decide to deal with funding Ana Paula construction. At this valuation though I see limited downside, and decent upside. I plan to put our research reports on the stock this week.