Summary
- Lake Shore Gold has announced its 2015 production targets.
- The company said it aims to produce 170,000 to 180,000 ounces of gold in 2015, similar to 2014 levels; all-in sustaining costs should be between $950-$1050.
- The company will also continue to evaluate and define additional resources at its Timmins operations.
- I think shares could outperform in 2015 as a result.
Lake Shore Gold (NYSEMKT:LSG) just announced the company's guidance for 2015. For the full year 2015, the company is targeting 170,000 to 180,000 ounces of gold in 2015, which is similar to what it anticipates this year. Cash operating costs are expected to average between $650 to $700 per ounce, with all-in sustaining costs between $950 to $1,000 per ounce, slightly lower than this year's guidance.
In addition, the company will continue to aggressively explore its 144 Gap Zone and Timmins operations in the coming year to evaluate the significant gold potential and define resources. This exploration is fully funded by a recent$15 million equity raise, which is great news.
In my original article on Lake Shore Gold, I argued that the stock was a strong buy for a few reasons. First, the company was continuing to grow its low-cost, high-grade production, with average grades of 5.4 grams per tonne and production of 52,300 ounces in the second quarter. Next, its cash and bullion position increased to $53 million as a result of its strong profitability, with $17 million in debt also repaid. Finally, I argued the company's properties had exceptional exploration potential, with the 144 Gap Zone returning some of the best drill results on Nov. 13 - highlights included 12.61 g/t gold over 11.5 metres and 4.17 g/t over 30 metres.
(Credit: Lake Shore Gold corporate presentation)
The guidance update from Lake Shore Gold is obviously positive news. With gold production expected to come in between 170,000 to 180,000 ounces at sub $1,000 all-in costs, the company should turn a nice profit with gold at current prices. In fact, with 180,000 ounces produced at $1,000 all-in costs and a $1,200 gold price, the company should bring in roughly $34-$36 million in EBITDA based on margins of $200 per ounce.
However, the real upside is on the exploration front in my opinion, as the company continues to aggressively drill its high-potential properties. A fully funded exploration program in 2015 means that further impressive results could be coming next year without the company having to raise equity or debt. It's clear from the recent drill results that Lake Shore Gold likely has far more gold ounces at its properties than what is currently reported, and I look forward to seeing future drill results and a new resource estimate.
For these reasons, I think Lake Shore Gold is a solid gold mining stock pick for 2015, and I plan on adding shares shortly.
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