$4 target
Timmins Gold Corp. (TMM-TSX) $2.51
Company provides update on Q2 production from its San Francisco mine
Philip Ker, B.Sc.Geol, MBA 416-775-5130 pker@union-securities.com 27-Oct-11
Stock Rating: Buy Target Price: $4.00
Timmins Gold is a Canadian based gold producer focused on projects in Mexico. Timmins Gold has now begun full scale gold production at its wholly owned San Francisco Gold Mine in the state of Sonora. The mine is a past producing open pit, heap leach operation from which Timmins will be producing at a rate of 80,000 - 100,000oz per year. Current reserves are estimated at approximately 1.2 million oz and the Company aims to expand these reserves through its current drill campaign. Timmins also aims to develop the past producing La Chicharra pit which is located just 1.5km from the San Francisco mine.
Source: www.bigcharts.com
Event
Timmins released an update on the Q2 production for its San Francisco operations in Sonora, Mexico.
Impact
Neutral
Details
Sluggish completion of crushing expansion impacted throughput: Due to the slower completion of the crushing expansion, Timmins produced lower-than-expected gold for the quarter (17,287oz versus 23,000oz expected) and as a result, we have made modest adjustments to our FY 2012 production forecast and trimmed our outlook to 84,000oz from 96,000oz. The Company was able to significantly increase mining production from the San Francisco pit to 22,076tpd in Q2 from 18,112tpd in Q1 and is urgently completing the necessary expansions to its crushing system within the coming weeks in order to keep pace with the mining cycle and avoid substantial stockpiling and increased production costs.
Management assessing recoveries: The past quarter presented significant difficulties with obtaining sufficient supplies of cyanide and as a result, has impacted the optimal flow of cyanide to the leach cycle. In combination with acquiring sufficient cyanide supplies and hiring a consultant, management has recently implemented the recommendations provided, and have significantly increased the amount of cyanide and flow rates to the leach pads. The additional soaking of the leach pad should aid in recovering additional gold still remaining in inventory on the leach pad.
Major drilling program continues - upside to reserve and resource remains: Timmins has been aggressively engaged in a 20,000m per month exploration program, which is primarily targeting the nearby La Chicharra historical pit. Continued drilling through the end of the year will provide additional ounces to the San Francisco and La Chicharra reserves and resources. Management believes an updated 43-101 resource estimate will be provided in Q1 2012 and will incorporate a substantial portion of this aggressive drilling campaign. The recent news also provided information that Timmins has acquired an additional 700ha of land for expansion of its operations at La Chicharra; we believe this to be a significant milestone should management decide to bring La Chicharra into production. Please see important disclosures at the back of this report. Philip Ker| 416-775-5130 | pker@union-securities.com EQUITY RESEARCH MINING REPORT Q2 - 2012Q1 - 2012Ore Mined (M Dry tonnes)2.0311.648Average Grade (g/t)0.650.76Ore Processed (M Dry tonnes)1.3641.239Average Grade (g/t)0.800.86Waste Mined5.0974.239Total Mined (M tonnes)7.1285.887Strip Ratio2.512.57Gold Sold (oz)16,91717,965Days9291Average Ore Mined (tpd)22,07618,112Average Ore Processed (tpd)14,82913,616
Recommendation
We are expecting upside in throughput and recovery through 2012 – Maintaining $4.00 target: Despite the lower-than-expected production from San Francisco and a decrease in our overall yearly production rate to 84,000oz, we believe the Company will continue completing the necessary expansion plans and maintain its target of becoming a 100,000oz per year producer. Timmins has purchased an additional 7,000tpd mobile crusher that can be used for processing stockpiled ore, thus increasing total throughput at the San Francisco mine to 25,000tpd. We expect this additional crusher to come online in Q4 FY2012. Furthermore, as management addresses the lower-than-average recoveries, and continues to increase its throughput, quarterly and yearly production should continue to steadily increase over the next few quarters. We are maintaining our $4.00 target and Buy recommendation.
Exhibit 1: Q2 Production Profile
Source: Company reports