True Costs of Production for Timmins Gold
Let us use this methodology to take a look at the company's results and come up with the true cost figures for each ounce of production. When applying our methodology, we standardized the equivalent ounce conversion to use the average LBMA price for Q3FY14 which results in a silver-to-gold ratio of 65:1. Since our conversions change with metal prices, this may influence the total equivalent ounces produced for past quarters - which will make current-to-past quarter comparisons much more relevant.
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Observations for Investors
As investors can see, Timmins's core costs have risen every quarter in 2014 to the third quarter's $1211 per gold-equivalent ounce. We do note that there is a caveat to these cost levels as during the quarter there was exceptionally high rainfall and that affected costs and gold production - management does expect cash costs to decrease in the fourth quarter and that will of course lower core costs as well.
The company's core non-tax costs (core costs removing taxes) also rose to $1147 per gold-equivalent ounce, but taxes were fairly low compared to previous quarters at $1.7 million dollars.
On a comparative basis, we have only published a few competitors' costs so comparisons are going to be limited until we publish other all-in costs. Also, investors should note that the data in the table below is sorted by core non-tax costs - which is costs excluding taxes. To get a feel for profitability and true all-in costs, investors should use the second column of "core costs" which include the necessary government bite known as taxes.
Despite a poor quarter due to record rainfall, Timmins still ranks in the middle of its competitors in terms of its core and core non-tax costs.
Conclusion for Investors
Timmins third quarter results weren't particularly great, but despite a poor quarter in terms of costs and production, they still did fairly well on a comparative basis. Moving forward, management believes that the company will lower costs in the fourth quarter and we believe that we should see core costs move back under $1200 per ounce and possibly closer to $1100 - which would rank Timmins fairly high in terms of its cost structure.