- Timmins Gold reported a 17.5% increase in gold production in Q2, thanks to an increase in ore processed. This was somewhat offset by lower ore grades.
- Both higher production and lower ore grades fit with my estimates laid out in January.
- With the share price much higher and the gold price only marginally higher I am not recommending the shares at the current valuation.
Timmins Gold (NYSEMKT:TGD) recently reported its Q2 production data. The figures are slightly better than those put forth in the company's most recent technical report on a few fronts including total production, ore grade, and strip ratio (how much "waste" is mined). Specifically the company reported production of 33,000 ounces of gold for the quarter, up 17.5% year over year. The company reported a decline in ore grade from 0.81 gpt. to 0.65 gpt., although this was expected. The decline in ore grade was offset by an 18% increase in processed ore and a 7% decrease in the amount of waste mined.
In all I think this was a very solid report, and it exceeds the expectations I put forth back in my January article, in which I argued that the company was less attractive than I initially thought it was back in August because of rising costs. The fact that ore grades came down this year supports this revision, although the company's Q2 production data is better than expected in terms of ore grade (0.65 gpt. vs. 0.59 gpt.), strip ratio (2.4 vs. 2.5) and production (132,000 ounces (annualized) vs. 121,000 ounces). With this in mind and considering that the gold price is slightly higher ($1,310/oz. vs. $1,270/oz.) I think the company is more valuable. But so does the market--shares are up 35%.
So I would wait for now. Before committing any new capital at current levels I want to see the company's production cost data. In my last assessment I cited production costs as a concern, but given the strong production data the company probably exceeded expectations. If costs were low enough, and if the company can maintain this level of efficiency, then the stock might be worth buying at the current share price. But given that this is an unknown, and given that the gold market had a significant reversal on Monday I would wait.
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