Action Notes Summary
Equity Research
August 23, 2016
Steven Green, CFA
Daryl Young, CFA, CA
Event
Timmins provided an updated mine plan for the continuation of operations at its SanFrancisco 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 ozgrew 53% compared with Y/E 2015, reflecting the inclusion of roughly two yearsof additional drilling and exploration data, as well as the use of a higher gold priceassumption 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.
Managementalso 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 theoptionality 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.