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Timmins Gold (TMM on the TSX and TGD on the NYSE-MKT) has come a long way in a relatively short period of time. Timmins Gold owns and operates the San Francisco open pit gold mine in northern Sonora Mexico. When TMM started commercial production in 2010 it had a five year mine life at an annual production rate of 80,000 ounces of gold. This was based on a crush rate of 10,000 tonnes per day. TMM drilled over the next year and in 2011 came up with a six year mine plan at an average of 130,000 ounces a year. In order to meet the capacity requirements of this mine plan they started to increase crushing capacity and went to 15,000 tonnes per day in 2011 and 20,000 tonnes per day in 2012. In September 2013 they further increased their crushing capacity to 24,000 tonnes per day. They have just announced a further resource/ reserve and mine plan which shows production of 122,000 ounces a year for 9.5 years with an additional 1.78 million ounces of inferred resources which are right beside the current pit.
Aggressive expansions like this can lead to cost overruns: however TMM has been on budget if slightly behind schedule. Further, the expansion has been funded from internal cash flow. Let’s look at some of the statistics. The company has a 30% increase in gold production year over year since they started producing in 2010 and a 30% annual increase in crushing capacity. The company has increased reserves from 780,000 gold ounces in 2010 to 1.6 million ounces in 2013 and that is after mining out around 400,000 ounces. This is an increase of 150%. Inferred ounces have increased from about 208,000 ounces in 2010 to 1.78 million ounces for an increase of around 750%. Meanwhile their share price is not much higher than it was when the company started production back in 2010. They are fully permitted, have power from the grid and plenty of water for their operations. In addition they are in a safe mining jurisdiction and they own the land that they operate on.
Timmins Gold was one of the best performers on the TSX mining index during 2012 and was hanging in really well in 2013 until they came back to the rest of the field in the last 3 months, based mainly on institutional selling pressure.
Let’s face it the last three years have been very difficult for gold investors. The good news is we appear to be in the final washout. It would come as no surprise that we see a strong upside reversal and if so, one would want to be invested in quality stories like Timmins Gold. They have now completed their expansion, and are one of the lowest cost producers out there. They are well positioned to start generating some significant free cash flow. Once the price of gold starts to show some positive upside momentum it is companies like Timmins Gold that can show the greatest gains.
