Revisiting Mine Plan - Some Important notes in this gold env
This is TD's opinion on TMM following the release of the last SF mine plan. Considering the current gold environment, and the fact TMM is on the cusp of delivering a new mine plan, it is wise to take note of some key items here (my bold). It is also valuable to understand TMM has already produced 36% of their mid-point guidance for FY17 in just 1 quarter.
We are, indeed, on the cusp of a significant move upwards, post release of the mine plan and PFS.
Aug 2016:
Event
Timmins provided an updated mine plan for the continuation of operations at its San
Francisco mine in Mexico.
Impact: SLIGHTLY POSITIVE
Following on the Q2 announcement that mining would continue beyond 2016 at
San Francisco, an updated life-of-mine plan and reserve has now been released.
The plan forecasts total production of nearly 400k oz over roughly six years after
2016. Although production is lower than our estimate in 2017, during transition to
the new plan, the overall ounces produced and mine life are greater than what we
had expected.
Production and costs: Initial production in 2017 and 2018 is expected to be higher
at between 65k-70k oz and 80k-85k oz, respectively, before declining to between
50k and 60k oz until 2023. Costs are expected to average between $900 and $950/
oz with low sustaining capex. We had previously included two additional years of
production in our model and a resource credit, but we have now incorporated the
new plan.
Increased gold price and drilling drive reserve growth: 2P reserves of 574k oz
grew 53% compared with Y/E 2015, reflecting the inclusion of roughly two years
of additional drilling and exploration data, as well as the use of a higher gold price
assumption of $1,250/oz, up from $1,000/oz in 2015. The average reserve grade
has decreased to 0.56 g/t from 0.63 g/t, reflecting a lower cut-off grade. Management
also noted significant leverage to gold, with resources increasing nearly 70% for a
$100/oz increase in the gold price.
We have revised our model for the new mine plan; our NAV increases to C$0.93/
share from C$0.89/share previously.
TD Investment Conclusion
We are maintaining our BUY recommendation and C$1.10 target price. With the
optionality of the producing San Francisco mine and the new management's focus
on surfacing value for Ana Paula, which has favourable economics, we continue to
believe that there is value to be surfaced here.