Lake Shore remains an attractive gold miner with huge upside Summary
- Lake Shore Gold is an attractive gold miner to own in 2015. .
- The company recently announced preliminary 2014 cash costs of $595 and all-in sustaining costs of $875 for 2014, which is well below guidance; 2015 guidance was strong..
- The company's cash and bullion increased by $26 million last year , while it also repaid $45 million in debt at the same time.
- With lower operating costs, higher output and further exploration upside, Lake Shore remains an attractive gold miner with huge upside.
Lake Shore Gold
LSG data by YCharts
Lake Shore Gold (NYSEMKT:LSG) is set to have an impressive 2015 as the company benefits from increased output at its operating mines, lower operating costs and a higher gold price.
For those unfamiliar with the company, Lake Shore owns and operates three multi-million ounce gold complexes in the Timmins Gold camp, Northern Ontario. The company's flagship asset is the Timmins West Mine, which produced 142,200 ounces in 2014, a 33% increase from 2013. The mine has a reserve base of 492,000 ounces at high-grades of 4.6 grams per tonne gold.
The second biggest mine is the Bell Creek Mine, which produced 43,400 ounces of gold in 2014, a 53% increase from 2013. The resource base is quite large as it contains 672,000 ounces of gold in the measured and indicated resource category, and 872,000 ounces in inferred resource, with 106,600 ounces of resources also included in reserves.
The most exciting discovery can be found at the Timmins West Complex's 144 Zone, where drill assays have returned results like 13.54 grams per tonne gold over 2 metres, 7.18 grams per tonne over 24 metres, 9.65 grams per tonne over 4.6 metres, and 5.19 grams per tonne over 23.7 metres. A total of 120,000 metres of surface and underground drilling is planned in 2015, and I expect a lot of positive results from the exploration program. All of this makes Lake Shore an attractive gold miner to own in 2015.
Cash Costs Continue to Drop
The company recently announced its preliminary operating and all-in sustaining cash costs for 2014. For the fourth quarter, the company reported cash costs of $598 and all-in sustaining costs of $915 per ounce; for the full-year 2014, Lake Shore reported cash operating costs of $595 and all-in sustaining costs of $875, which is well below the company's guidance of $950 to $1,050 per ounce. With gold averaging $1,200 to $1,300 for the year, Lake Shore was profitable gold producer, which can't be said for many other gold miners.
Lake Shore Gold had previously announced record 2014 production, with 185,600 ounces of gold produced, while it also said it repaid $20 million owed on a line of credit, bringing total debt repayments in 2014 to $45 million. As of now, Lake Shore has $60 million in cash and bullion, with $103.5 million in debt in the form of a convertible debenture, which is convertible at $1.40 per share and due in September of 2017. So the company has done a pretty good job of strengthening up the balance sheet, and its debt isn't due for another two years and can be converted to equity, so I think Lake Shore's financial position is quite strong here.
For 2015, I expect similar results from Lake Shore; the company is guiding for all-in sustaining costs between $950 to $1,000, but this was the same guidance given for 2014, and Lake Shore crushed that guidance. Production is guided for 170,000 to 180,000 ounces, and I expect the company to beat this guidance as well.
The company's gold remains the same: generate positive free cash flow to repay debt and build its cash position, while further exploring the new 144 discovery and releasing an initial resource estimate.
Valuing Lake Shore Gold
Lake Shore Gold's valuation remains attractive in my view. Currently, Lake Shore carries a market cap of $344 million, and with $51.9 million cash and equivalents and $109 million debt, the company has an enterprise value of $403 million.
With 180,000 ounces of production expected at all-in costs of $950 an ounce, and a gold price of $1,250, I estimate Lake Shore Gold will end up bringing in $54 million in full-year EBITDA. This gives the company a 2015 EV/EBITDA of 7.6, which is somewhat low when compared to other gold miners like Yamana Gold's (NYSE:AUY) 11.17, Goldcorp's (NYSE:GG) 15.64, Agnico Eagle's (NYSE:AEM) 12.26, and New Gold's (NYSEMKT:NGD) 10.03, according to figures at Yahoo Finance.
Lake Shore Gold also has a large, growing reserve and resource base. In total, Lake Shore has 2.98 million ounces of gold in the measured and indicated category, plus 3.35 million ounces in inferred, for total resources of 6.33 million ounces. This places a value per ounce of $63.66 on each gold ounce. Compared to other gold miners, this looks somewhat cheap. For example, Kinross (NYSE:KGC) has an EV/Ounce of $72, Barrick (NYSE:ABX) is $91, El Dorado Gold is $99, Auriqo Gold is $123, Goldcorp is $167, and Agnico Eagle is $195 per gold ounce, according to GoldMinerPulse.com.
All in all, I think Lake Shore Gold is just beginning to hit the sweet spot - the company continues to grow its production, reduce costs and explore its high-potential assets. I expect the stock to outperform in 2015 as a result.
https://seekingalpha.com/article/2836686-lake-shore-gold-has-further-room-to-run-in-2015