Timmins Gold (AMEX: TGD) [TSX: TMM] is listed on the NYSE MKT AMEX and TSX with a 2012 high of US$3.47, now trading at $0.20 per share. This Canadian gold company focuses on production and development in Mexico. Timmins owns and operates the San Francisco open pit, heap leach gold mine in Sonora with reserves of 1.6Moz at 0.54g/t that currently produces 115K-125Koz per year at ~$800/oz cash costs with potential for higher grades along strike and at depth under the existing pit.
Timmins plans to grow its annual production profile to 220koz+ by developing its recently acquired Caballo Blanco 7.5-year project in Vera Cruz, with ~688Koz-Au + ~1.3Moz-Ag recoverable at an $85M capex and $784/oz cash costs, and to 320Koz+ with its advanced Ana Paula 8.2-year project in the Guerrero gold belt. Ana Paula was acquired through the Newstrike Capital merger in May and looks more likely to be developed first with higher values of 1.86Moz-Au + 7.1Moz-Ag of M&I at a gold equivalent of 1.47g/t and 68Koz-Au + 664Koz-Ag of Inferred at 1.23g/t-AuEq.
TGD's December FY2014 balance sheet first caught my eye, which shows approximately $27M cash, $15M receivables, $47M inventory and $1M prepaids or almost $90M in current assets versus current liabilities of less than $38M which includes $14M in short-term debt. Shareholders' equity is $214M which is almost four times its current market cap of $57M, with no long-term debt. After the Newstrike merger, the July 30 Q2 report now shows $81M in current assets versus $41M in current liabilities. Although these current amounts moved about 10% the wrong way, total assets grew 22% or $68M from $312M to $380M as total liabilities rose less than 2% or $2M from $98M to $100M.
Subtracting $40M in working capital from TGD's $57M market cap values the rest of the company at only $17M. Again, the plant and equipment alone should exceed this, which means the gold at its operating mine plus the two mines acquired this year for around $125M have been totally discounted. The market is saying that Timmins' 1.6Moz of reserves plus over 2.6Moz in other categories, plus exploration potential from various claims on 200K+ hectares of mineral rights in Northern Sonora, 45K+ha north of Zacatecas, 47K+ha south of Nayarit plus others areas are all worth nothing - wrong!
I thought TGD was undervalued even at this year's $1.27 high in January, but I remained on the sideline as gold stocks were still sliding and were especially punished after making acquisitions. Short sellers lean even more on stocks that ETFs might unload if their market caps fall below arbitrary minimum levels and I knew the Market Vectors Junior Gold Miners ETF (NYSE:GDXJ) held 18M+ shares.
The GDXJ rebalances on the third Friday of each quarter and on September 18, with TGD's market cap below $75M, I had stink bids in hoping for an end-of-day avalanche. TGD/TMM daily volume was around 1M but traded over 24M shares that day. The GDXJ's 35M+ share hoard of Perseus was dumped then as well and its 25M+ shares of Banro were jettisoned September 19, 2014 near its low.
With the cloud of GDXJ selling now out of the way, TGD may have finally formed a bottom base. After the market close on that eventful Friday, Timmins announced the acquisition of a process plant for C$8M that will save US$40-60M in Ana Paula capex costs, with Goldcorp (NYSE:GG) making a C$6M investment to hold ~9.9% of its shares. Timmins may still need another ~US$100M, but this should be easier now with a big chunk of its capital costs already out of the way.
However, I didn't like TGD's July 30 Q2 report, with 2015 guidance lowering production by 15Koz at $875-$925/oz cash costs. Another concern was the October 6 leadership change news which also said its Q3 will provide an updated mine plan with a significant asset impairment charge. I can only guess if this is from low share prices and low gold to position the company for financing or a buyout to appease some large shareholders, or something more serious. More should be known tomorrow after its Q3 operating and financial results. I found this Timmins Gold stock valuation video helpful.
My calculations and observations are as an individual investor and are not recommendations. Data comes from financial reports, news releases, company websites and other public sources that may not be accurate, complete or up to date. There may be conflicts of interest as I own stock in some of these companies. I share these ideas in hopes that readers will comment on them and on other company stock boards at our website with their own insights, opinions and anything I may have missed. I mentioned the above three gold stocks in an interview with Palisade Radio posted yesterday.