Bullish Comment on Grandich Client Timmins Gold

Posted: 26 Aug 2010 06:56 AM PDT

From Canaccord’s Morning Coffee 8/26/10

Timmins Gold* (TMM : TSX-V : $1.78), Net Change: 0.09, % Change: 5.33%, Volume: 802,791

Not Timmy’s…Timmins Gold, an often overlooked and confusingly-named junior gold producer in Mexico, was attracting attention on Tuesday. After a recent site visit, Canaccord Genuity Mining Analyst Nicholas Campbell is not surprised that the story is catching investors’ attention. He recently boosted his bullish target based on: 1) Reserve and resource expansion. An updated reserve/resource estimate and plan for the San Francisco gold mine in Mexico is expected in September. He is looking for 800,000-900,000 ounces of gold in reserves and sees potential to expand reserves to 1.0-1.2 M ozs by mid-2011; 2) Throughput expansion. San Francisco is ramping up from 12,000 tpd currently to 14,000 tpd by the end of 2010. At this rate, Timmins should produce 80-100,000 ounces of gold per year. Further the company could expand the throughput to 16,000- 18,000 tpd for an incremental capex cost of US$8-15 million, which should boost San Francisco production to 100,000-130,000 ounces of gold per year; 3) Regional Exploration. Timmins has a prospective regional land package around San Francisco with some very interesting artisanal showings that have yet to be tested and the company holds a large land package adjacent to

Goldcorp’s (G) Penasquito mine. This could provide blue sky upside for Timmins; 4) Trading at a significant discount to peers.

Based on Campbell’s estimates its trading at 0.74x P/NAV (5%, spot) and 3.3x 2011E CFPS compared to its peers which are trading at 1.02x P/NAV (5%, spot) and 10.8x P/NAV spot; and 5) A target or a consolidator. The company offers a discounted valuation on a 100,000 oz/yr producer with expansion potential. This makes it a likely acquisition target for a larger cap junior to intermediate gold producer. Alternatively, the company could leverage its strong Mexico technical group to consolidate other small producers in Mexico to create a larger, more liquid, more leverage junior gold producer.