TD raises target Lake Shore Gold Corp.
(LSG-T) C$1.24
Q2/14 No Surprises; Another Great Quarter
Event
Lake Shore reported Q2/14 financial results pre-market earlier today, with
adjusted EPS of $0.03, in line with our estimate of $0.02 and consensus of
$0.03. The company had previously reported its gold production, debt
repayments, cash generation, preliminary cash costs and AISC so those
results were not surprising.
With H1/14 production of 96.9 koz and cash costs of US$585/oz (AISC of
US$862/oz), the company appears to us to be on-track to beat its full year
guidance of 160-180 koz at US$675-US$775/oz (AISC of US$950
US$1050/oz).
Impact: NEUTRAL
With another quarter of strong production and lower costs, Lake Shore
continued to generate very strong free cash flow of $26mm ($0.06/share) in
the quarter. We are forecasting Lake Shore to generate approximately $32mm
in FCF in H2/14, while spending an additional $20mm in capex. The
company ended the quarter with $53mm in cash (up from $39mm in Q1/14)
and total debt repayments in H1/14 were approximately $17mm.
We have updated our model to reflect Q2/14 results. Net of these changes,
our corporate NAV5% is relatively unchanged at $1.36/share (previously
$1.35/share). In addition, we are increasing our target multiples to 1.1x
NAV5% (previously 1.0x) and 11.0x (previously 8.0x) our 2015 CFPS
estimate. Our increased target multiples better reflect our upside view on
production, our positive FCF forecasts and are more in line with other
small/intermediate gold producers in our coverage universe.
TD Investment Conclusion
Lake Shore reported its third successive quarter of strong operating and
financial results, in our view. Given this trend and our positive outlook, we
believe the company's discounted valuation versus its peers is compelling and
particularly so in terms of its free cash flow yield, which is the highest in our
coverage universe (Exhibit 3). We have increased our 12-month target price
to $2.00/share (up from $1.65/share previously) and would suggest that
perceptions of the company are improving with the stock up approximately
28% in the last month. We re-iterate our BUY recommendation.