- Lake Shore Gold reported record production of 52,300 ounces of gold in the second quarter of 2014.
- All-in sustaining costs came in well below guidance, at just $784 an ounce, well below my expected numbers.
- Lake Shore Gold is profitable, paying down debt, increasing production and exploring for more gold; I believe shares will continue to outperform and have at least 50% upside.
This article will give an update on Lake Shore Gold (NYSEMKT:LSG), a company I first covered in an article published on July 9, 2014. In that article, I argued that shares of Lake Shore had further room to run, even though they had already advanced more than 50% on the year.
You'll see below that Lake Shore Gold has outperformed its peers over the past year: since 2013, Lake Shore is up more than 230%, while the Gold Miners Index (NYSEARCA:GDX) and the Junior Gold Miners Index (NYSEARCA:GDXJ) are both negative.
Lake Shore Gold: Low-Cost Production in Canada
Lake Shore operates three multi-million ounce gold complexes in the Timmins Gold camp, located in Northern Ontario, Canada. The company produced 107,100 ounces of gold in 2013 at the Timmins West Mine and 27,500 ounces at the Bell Creek mine.
A mill expansion was completed in the third quarter of 2013, which has led to impressive production growth and lower all-in sustaining costs, which I believe is the reason for the share price outperformance For full-year 2013, total gold produced was 134,600 ounces at all-in costs of $1,139, but the company has forecasted costs to fall to $950 to $1,050 for full year 2014.
So far, Lake Shore Gold has blown past my expectations and is firing on all cylinders.
Second Quarter Results
Here's a highlight of Lake Shore Gold's accomplishments in the second quarter of 2014:
- Record production of 52,300 ounces, which is a 70% increase year-over-year.
- Record gold sales of 53,500 ounces, which is close to double 27,600 ounces sold last year.
- Cash operating costs of just $556, 39% better than last year.
- All-in sustaining costs of just $784 an ounce, a 38% improvement from last year and far lower than the company's 2014 targets of $950 to $1,050 an ounce.
- An increase in total cash and bullion of $14.3 million to $53.4 million at June 30, 2014.
- At the same time, Lake Shore has repaid $17.4 million in debt.
The company's key priority is to extend the life of mine with drilling at both the Timmins West and Bell Creek mines. The company is about to start a new $1.8 million, 18,000 metre drill program at Bell Creek, to test for mineralization below the current reserve base.
The company will also invest $1.6 million on a new surface exploration program, which will be focused on high-potential targets near current mining operations.
Lake Shore Gold remains in a great position to achieve its full-year 2014 production and cost targets, in addition to repay debts of $25 million and increase its cash balance. The company has 6.3 million ounces of gold in a world-class mining jurisdiction, is growing its production while decreasing cash costs, and has further exploration upside. I believe shares should continue to outperform.