Moriarty on TimminsI flew into Hermosillo Mexico for my visit to Timmins Gold (TMM) late in the afternoon. Most of the people on the tour were on the same flight from Los Angeles and soon we were in vans on our way to Magdalena Mexico, near the existing San Francisco mine of Timmins.
We spent the night at the appropriately named El Toro hotel and early the next morning we were headed out to the field to visit San Francisco.
San Francisco was a past producing open pit gold mine. Timmins now owns 100% of the mine with a minor NSR. After 116,000 meters of drilling, Timmins has just under a million ounces of gold at $700 gold. They have 611,000 ounces of gold in reserve at $650 gold.
Company President Bruce Bragagnolo estimates they can be in production by Q2 of 2009. As we visited, the crushers were being installed. The current capacity is 11,000 tons per day of ore at 1.08 g/t and a recover of just over 73%. In testing, Timmins realized that they needed a smaller crush size than the previous operator had been using for maximum recovery. They estimate production of 84,000 ounces of gold a year.
The numbers are compelling. Timmins management figures that at 80,000 ounces a year with a gold price of $850 they will have cash flow of $34 million a year which should give them a market cap of $170 million compared to a current market cap of $35 million. I agree.
There is the issue of raising the $15-$25 million necessary to finish the mine. Bruce believes that they have it in hand through a mixture of debt and equity. I see this as being one of the easiest projects to finance since they are so far along and have already put $25 million into the project. Now is not the best time to be trying to find money but this is the sort of project people are still willing to invest in.
The easiest way to make money investing in gold mines is to invest just as they go into production. Costs are well known and solved and a reasonable estimate can be made of profit potential. This project has an IRR of 87% and a NPV at a 5% discount of $104 million. Those are good numbers.
Management is solid and they have a number of follow up projects in the Sonora Desert area and further south in Mexico, their area of focus. I really like the project and the company. There are really excellent prospects for expansion and I expect San Francisco to be in production a lot longer than they plan for right now. It's an open pit heap leach operation with low costs and reasonable recovery. They have expansion capability built in to the crushing facilities so 84,000 ounces of gold should be a minimum, not a maximum.
We are biased, do your own due diligence. We don't own shares and at present Timmins are not an advertiser but this kind of company, at this stage, is the perfect refuge from the storm we know is here.
Timmins Gold Corp
TMM-V $.46 (Dec 26, 2008)
TMGOF-PK 65.5 million shares
Timmins Gold website
Dec 27, 2008
Bob Moriarty
President: 321gold
https://www.321gold.com/editorials/moriarty/moriarty122908.html