Timmins Gold (TMM : TSX-V : $1.42), Net Change: 0.09, % Change: 6.77%, Volume: 1,477,183
Time for you to tag along? Shares of Timmins Gold’s were not taking a siesta Thursday, rallying on news that commercial
production was achieved at its San Francisco open pit mine in Mexico. According to the company, “mining rates and process
plant throughput have steadily built up during the commissioning phase and are now exceeding budget and plan by almost
10%.” Also, Timmons continues to project production of 80,000 ounces of gold in 2010 with average life-of-mine cash costs of
US$412/oz of gold. Canaccord Adams Mining Analyst Nicholas Campbell is looking for production of 74,000 ounces of gold in
2010 at a cash cost of US$468/oz. With the project successfully achieving commercial production, the company intends to shift
its focus from development to exploration. In particular, Timmins plans to complete an exploration program to test for the
potential to push back the pit wall to the south, southwest and southeast as well as potentially develop the Chicharra pit to the
west. Based on the current estimated reserve base, at the expanded throughput rate the San Francisco project has a mine life of
roughly 4.5 years. However, in addition to reserves, there are 170,000 ounces of measured, indicated and inferred resources that
have not been incorporated into the mine plan. Campbell believes shares could trade significantly higher based on the following:
1) A revaluation as the company moves from development to production: Timmins is trading at 3.2x 2011E CFPS vs. a junior
producer average of 11.9x 2011E CFPS. As Timmins ramps up and achieves commercial production at San Francisco, he
believes the valuation gap should start to narrow; 2) potential to expand the mine life of San Francisco; and 3) an acquisition
target. Shares trade at a significant discount on P/NAV and Campbell views Timmons as a tag-on acquisition target for a junior
producer with operation in Mexico. The next catalyst for Timmons should be the release of an updated resource estimate,
expected this quarter. Campbell is also looking for a new resource approaching 1.0 million ounces of gold, which should allow
the company to expand the mine life by 3-4 years.