Timmins Gold hits the right notes at San Francisco

VANCOUVER — Mexico-focused producer Timmins Gold (TSX: TMM; NYSE-MKT: TGD) is riding positive momentum to start 2014 as the company exceeds analyst expectations and sets production records at its San  Francisco gold–silver operation, 150 km north of Hermosillo in Sonora state. Timmins also completed a US$26-million bought-deal financing in February that should help with upcoming capital requirements.

The company finished 2013 strong, as it cranked out 34,600 equivalent oz. gold during the fourth quarter. The results contributed to annual production of 120,900 equivalent oz. gold at cash costs of US$717 per oz., which beat the 118,000 oz. guidance.

Timmins spent the second half of the year upgrading San Francisco’s leach pads and crushing capacity, which resulted in annual and quarterly production jumps of 27% and 39%. The company also doubled San Francisco’s mine life when it boosted reserves by 43% to 91.2 million proven and probable tonnes grading 0.54 gram gold per tonne for 1.6 million contained oz.

As a result of production increases Timmins saw its metal revenues jump 3% in 2013, though results were offset by a 15% year-on-year drop in averaged realized gold prices. The company still generated US$8.7 million in free cash flow during the year, and finished up 2013 with US$23 million in cash.

Timmins showed potential operational upside transitioning into the first quarter of 2014. On April 9 the company released its quarterly results, which represent a 24% year-on-year increase in gold-equivalent production to 35,200 equivalent oz. gold, as average head grades remained comfortably above stated reserve grades.

During the first quarter Timmins processed 2.1 million tonnes of dry ore at an average grade of 0.76 gram gold, while stockpiling less lower-grade material. Stockpiling has dropped 45% over the past two quarters. During the third quarter of 2013 the company stockpiled 527,000 tonnes of material at an average grade of 0.27 gram gold, while it stockpiled 288,000 tonnes of ore grading 0.26 gram gold to start 2014.

The company hit its third straight quarter of record production, and reported that “the strong quarter was underpinned by the optimization of the crushing circuits to the rated capacity of 24,000 tonnes per day and by improved processes. Crusher throughput has reached expected levels and was up 19% over the same period last year and 8% over the last quarter. As per plans we are reducing the amount of ore being stockpiled.”

Timmins expects to produce between 115,000 and 125,000 equivalent oz. gold in 2014 at cash costs of US$800 per oz.

Timmins’ strong first quarter prompted BMO Capital Markets analyst Andrew Kaip to boost his second-quarter grade assumptions at San Francisco by 10% to 0.65 gram gold.

Kaip has a “market perform” rating on Timmins along with a $1.75-per-share price target, and wrote on April 9 that BMO has increased its 2014 production expectations for the company towards the upper end of guidance at 125,000 equivalent oz. gold. Kaip also noted that BMO’s annual earnings-per-share estimate has jumped 100% to US8¢.

Timmins Gold has traded within a 52-week window of $1 and $3.05, and jumped 43% over the first three months of 2014. The company saw its shares rise 10¢ during daily trading after releasing its first-quarter results before closing at $1.58 at press time. Timmins has 163.4 million shares outstanding for a $258-million market capitalization.