Timmins Gold Corp

Timmins Gold Corp is junior gold mining company that just recently went from an explorer status to a producer. Production at their first ever gold mine commenced in April 2010. The company is focused on Mexico, and also has several exploration properties which it plans to actively drill in 2011.

San Francisco Gold Mine – Mexico

The San Francisco Gold Mine is a past producing open pit heap leach operation with a probable mineral reserve of 780,000 ounces of gold. The mine was in operation from 1996-2001, and over 300,000 oz gold was produced during that time. Timmins purchased 100% of the project in 2007, and completed a pre-feasibility study in 2008.

In April 2010, Timmins began full scale gold production at the mine, and it will be producing gold at a rate of over 100,000 ounces per year at a cash cost of $489 per ounce. The cost for the project was roughly $40 million.

A gold plant with a capacity in excess of 120,000 ounces per year is on site and has been completely refurbished and tested. The company refurbished the primary crusher, and purchased a new secondary and tertiary crushers. New conveyors were also installed, as well as heap leach pads.

At 780,000 oz of gold in reserves, the mine will only produce up to 2016. However, Timmins is working hard to expand that. With the commercial production milestone reached, the company is now focused on drilling beside the pit to expand the reserves at the San Francisco Gold Mine. The company expects the mine life to increase significantly.

First Gold Pour

The first pour is always an exciting time. All that hard work, and money spent, is finally paying off. You can actually see the results of all that effort in front of you. And for Timmins, those results were in the form of a roughly 100 pound brick that contained 1,152.70 ounces of gold and 288.28 ounces of silver. The first pour was made in late 2009, at spot prices of US$1,140 gold and US$17.50 silver, the dore bar had a value of US$1,319,122 (US$1,314,078 of gold and US$5,044 of silver).

Weight = 90 pounds(roughly 80% gold, 20% silver)

Value = $1.3 million(prices at time of pour)

TIM Claims

I don’t normally talk about exploration properties that much. Like I have said before when dealing with these, there is too much speculation and too much unknown. However, I would like to mention one of Timmins’ properties.

The Company acquired a 40,000 hectare land package in the Peňasquito area of Mexico. The claims are right next to the Peňasquito Gold Deposit (Goldcorp) and are approximately 20 km to the northwest of the Camino Rojo project, which Goldcorp recently purchased. Proven and probable gold reserves at Peňasquito are 17.0 million ounces. Goldcorp has reported drill intercepts of up to 224 metres averaging 1.50 grams of gold and 24.45 grams of silver per tonne from its Camino Rojo project (3.44 million ounces gold and 60.7 million ounces silver).

It will be interesting to see if Timmins has anything here. Now that cash flow is increasing they can begin actively drilling on this property.

Financials

Q4 2010 highlights:

• Gold sales for this fiscal quarter were 20,030 ounces representing an increase in gold sales of 28 % over the prior quarter
• Positive Income from Operations of US$16.0 million or US$0.12 per share for the three months ended December 31, 2010, as compared to US$5.43 million or US$0.04 per share for the previous quarter
• Operating costs at the mine in terms of costs per ounce sold for the three months ended December 31, 2010 were US$439 ($445) compared to US$515 ($534) for the previous quarter
• Net income after tax for the quarter ended December 31, 2010 was $7.5 million or $0.06 per share ($0.05 on a diluted basis) compared to $0.9 million or $0.01 per share (on a basis and diluted basis) for the previous quarter
• Tonnes of ore placed on the leach pads for the three months ended December 31, 2010 totaled 1,208,678 at an average grade of 0.939 grams per tonne, an increase of 10.8 % and 14.9 %, respectively over the prior quarter. On average 402,893 tonnes of ore per month were placed on the heap leach pads (13,430 tonnes per day). In total 36,477 ounces of gold were placed on the leach pads or 27.3 % more ounces than were placed on the leach pads in the previous quarter
• Total direct mine operating cost per tonne of ore placed on the leach pads were $12.64 per tonne for the quarter ended December 31, 2010 versus $11.36 per tonne during the previous quarter, an increase of 11.3 %. The increase in cost per tonne was due primarily to an increase in the strip ratio coupled with a revision in the mining contract escalating formula as well as an important increase in the cost of diesel fuel.

$5 million in cash

There are 145 million shares fully diluted.

Conclusion

Currently Timmins has a market cap of $340 million, using fully diluted shares. If they meet production guidance this year, that is $140 million in revenue and probably $60-$70 million of cash flow. In other words shares are cheap. There is still some risk here though. They don’t have much cash, if they stumble in production at all then the shares are going to take a hit. They must not have any issues going forward, at least until they get some more cash on the balance sheet. Also, increasing the reserves at the San Francisco mine is a top priority for them. If they can get the mine life up to 10 years then that would be a huge plus.

I think this could be a big year for the company. If gold prices remain at current levels, and the company doesn’t miss production forecast, then the cash flow from the mine is going to cause investors to finally take notice. Not having much cash means they can’t be that aggressive with their drilling, which means they haven’t been able to increase their reserves that much. Now that they have this cash flow, they plan to step up their drilling, which should increase reserves as well as the life of the mine. I will say this, if the company had $50 million in cash, gold reserves of over 1 million ounces, and a mine life of 10 years, then the shares should be double what they are trading at