LAKE SHORE GOLD CORP 6.25 PCT DEBS T.LSG.DB

RE: RE: RE: RE: RE: RE: RE: RE: RE: 2.3 traded up

[Vanchester]

I certainly hope it is not the new resource estimate for the Timmins mine coming in at 2.05 million ounces. If it is then the cut off grade is going to be somewhere near 2.05 gpt!!! The original resource had a cut off grade of 7.5 gpt and LSG has been running less than half of that through the mill to this point. It may be that the original resource grade was higher than what they are encountering and thus when the new estimate is released, the grade will be knocked back a few notches to better represent what LSG is finding as the average grade. Include that with mining the lower grade "halo' and we come out with more resource but considerably lower grade.

What also bothers me is that whatever the 4th quarter results may be, and they will be good, those results will be hard to match and will  probably be weaker over the following 3 quarters. Mill is running at capacity so there is no room for improvement there until the Q4 when the mill is commissioned at higher throughput. Grade in the recent 4th quarter will be richer than normal due to the Thunder Creek high grade bulk sample so grade is unlikely to improve. I think you will see 6-7 gpt in the 4th quarter but somewhere near 5 to 5.5 for the following three quarters. That pretty much leaves us with the only possible positive being lower costs. But how much lower? With capacity and grade being pretty much static, the only tangibles over the next 9 months is the price of gold and costs of production. That's a hard sell in these times when everyone wants higher growth in shorter periods of time. If all the above hold true the nice selling point will be that they achieved the total 2011 production in only 9 months in 2012. The next 9 months could be pretty boring unless something else comes along.

 

v.