https://research.tdwaterhouse.ca/research/public/Markets/NewsArticle/1314-L4E7GG2C7-1

* Has budgeted $2.5 mln/month for drilling at San Francisco mine

* Aims to drill about 35,000 metres a month

* Eyes acquisitions, but not much more than $150 mln

* Sees about 20,000 ounces for April-June quarter

* Sees production going up every quarter

By Arnika Thakur

BANGALORE, May 16 (Reuters) - Mexico-focused Timmins Gold Corp , which lost out in a recent bidding war for Capital Gold and its El Chanate mine, aims to double the resource base at its Mexican San Francisco open pit gold mine this year.

Rival Gammon Gold outbid Timmins, backed by one of Canada's top resource investors, in a protracted battle for Capital Gold, highlighting the dash for gold spurred by soaraway prices .

Peers Quadra Mining and Agnico-Eagle have also snapped up assets needed to drive future growth.

"Capital became an over $420 million acquisition, that's about $300 an ounce, so it's much cheaper for us to drill," Timmins CEO Bruce Bragagnolo said in a telephone interview.

Bragagnolo said adding ounces by drilling was cheaper than buying them.

"We are adding gold ounces for $15 an ounce right around our existing pit," he said. (MY EDIT:that is ~165,000 oz per month based on drilling expenditure of $2.5 million per month)

Bragagnolo, who spent his summers as a teenager working in a mine at his hometown of Timmins, Ontario, said buying production could be a better proposition over the long term.

"Drilling is our main focus this year. Our budget is about $2.5 million a month, and we aim to drill about 35,000 metres a month," he said.

The San Francisco mine, with proven and probable reserves of 780,000 ounces, began commercial production in April last year, and the company says it has never sold an ounce of gold for less than $1,200.

"We have identified some new targets and we are trying to develop satellite mines as well as areas around the pit," said Bragagnolo.

By end-July, Timmins expects to have more than 100,000 ounces a year and production of 120,000 ounces by the end of the year. It recovered 82,640 ounces in the first-year of production.

The miner sees production going up every quarter and expects about 20,000 ounces for April-June, which will ramp up to about 25,000 ounces by the end of the quarter.

That said, the miner, which also owns the TIM claims in Penasquito, the Cocula claim in Jalisco, and a big land package around the mine in Sonora, has not shut the door on acquisitions.

"Something less than our market capital (about $337 million) ... Capital Gold started as a 50-50 acquisition, so something in that range. Less than 50 percent of our market cap," Bragagnolo said.

The miner was looking to consolidate the entire district with the Capital Gold buy.

"Now, we may have to look a little farther afield for our next acquisition...Though we'd love to stay in Mexico," Bragagnolo said. (Reporting by Arnika Thakur in Bangalore, Editing Ian Geoghegan, Prem Udayabhanu)