Morning Coffee, Canaccord Capital (02/16/2010)
"Timmins Gold rallied after it released an update on the operations at its San Francisco mine in Sonora, Mexico. Commercial production is expected to be achieved in Q2/10. Timmins is also expecting to issue a new resource estimate and mine plan in Q2/10. For 2010, the company is projecting production of 80,100 ounces of gold with sales of 68,700 ounces of gold, compared with Canaccord Adams' forecast for production and sales of 73,700 ounces of gold in 2010.

This updated resource estimate, as well as exploration, is expected to be a significant driver for Timmins. The company currently has roughly a five-year mine life at San Francisco. Canaccord Adams Mining Analyst Nicholas Campbell believes that as the company moves from development to production and establishes positive cash flow it should undergo a revaluation in the market. Timmins is currently trading at 3.7x 2010E CFPS versus an average multiple of 8.7x 2010E CFPS for junior gold producers. As Timmins ramps up and achieves commercial production at San Francisco, Campbell believes the valuation gap should start to narrow. Additionally, the San Francisco project has a mine life of only five years. In order to achieve a valuation in line with the junior producer average, Campbell thinks the company will need to demonstrate an 8- to 10-year mine life. He sees potential for this to be achieved through a combination of near pit reserve expansions and development of satellite deposits.

Finally, given the deep discount Timmins trades at on a Price/NAV basis compared with other junior gold producers, Campbell expects Timmins to attract attention from potential suitors."