TD boost Timmins Price Target to C$1.10 EEvent
Timmins reported Q2/16 financials and announced formal approval to continue
operating the San Francisco mine beyond next year.
Impact: POSITIVE
EPS of $0.02 were in line with our estimate and consensus of $0.02 reflecting
lower operating costs offset by slightly higher corporate costs.
Production was
previously released; however, costs of $681/oz were 7% below our
estimate of $733/
oz reflecting a lower strip ratio in the quarter.
Mining at San Francisco to continue:
Timmins formally announced production will
continue beyond 2016 in light of the current higher gold price; this does not come
as a surprise as we had previously stated the operation could be FCF positive at
gold prices above $1,300/oz. Management expects to release a formal mine plan
before the end of August, in the meantime we have included an additional two years
of production in our estimates reflecting current reserves at San Francisco.
Ana Paula Feasibility gets go-ahead:
following on a robust PEA released in March
2016, management has formally approved spending $9.2mm to complete drilling,
feasibility and permitting of the project. The current timeline contemplates completing
the feasibility by Q3/17, with all permits in place to start construction in Q1/18.
Guidance updated; production up:
production has been increased to 90-100k oz
from 75-85k oz previously while cost guidance has been narrowed to $750-$800/oz
from
$750-$850/oz previously.
We have incorporated Q2 results and the new guidance; our NAV increases to C
$0.89/sh ($0.80/sh previously) reflecting the mine life extension.
T Investment Conclusion
We are moving to BUY from Speculative Buy and lowering our risk rating to
High from Speculative reflecting the continuation of production and reduced
balance sheet risk with the debt now paid off.
We have increased our target
to C
$1.10 from C$0.80 previously reflecting our new NAV and higher multiples given the
return to production and improving market sentiment.
With the optionality of the producing San Francisco mine and the new management's
focus of surfacing value for Ana Paula, which has favourable
economics, we continue
to believe there is value to be surfaced here