Expectations are high for Timmins Gold Corp (TSE:TMM) (AMEX:TGD) after the Mexico gold miner released record preliminary production results on Wednesday for its first quarter, leading Stonecap Securities analyst Brian Szeto to upgrade his rating and price target on the Canadian company.
The analyst lifted his rating to outperform from sector perform, and boosted his price target to $4.00 from $3.70 previously.
"After another record quarter of production at San Francisco as well as demonstrating a steady continued ramp up of operating capacity, we are increasing our multiple to NAV for Timmins and going back to an outperform rating," Szeto writes in his morning research note on Thursday.
"Although we are expecting slightly lower production in 2013 relative to company guidance, we still believe that the company will achieve a record year in terms of total gold production at the mine."
For the first quarter, the company, which produces from its San Francisco mine in Sonora, Mexico, said output was a record 28,328 ounces of gold - up almost 32 percent from the prior year period, and in line with management expectations. The gold miner also sold 28,642 ounces - up almost 35 percent from a year ago.
Timmins did not provide recovery rates for the quarter, but based on available information, Szeto calculates that the implied recoveries for the period were 60 percent.
The analyst notes that he is encouraged to see a continued ramp up at the mine, where the average ore processed was 19,858 tonnes per day - a 22 percent increase over the fourth quarter of 2012.
The company is realizing the benefits of the Stage 2 crusher expansion, with the plan to get production at up to 32,000 tonnes per day.
Overall gold grades came in better than expected in the quarter, at 0.83 grams per tonne (g/t) gold versus Stonecap's estimate of 0.80 g/t gold, but was offset by lower-than-expected recoveries of 59.8 percent compared to the analyst's forecast of 62.5 percent.
Still, Timmins stood by its 2013 guidance of between 125,000 to 130,000 ounces of gold production, with cash costs in the range of US$700 to US$750 an ounce.
"As a reminder, we are assuming total production in 2013 to be 116,000 ounces (at an average cash cost of US$749/oz), where we are anticipating a slightly slower-than-expected ramp up to +30,000 tpd, which would include initial production from the La Chicharra satellite pit located 1.5km west of current mining operations," Szeto explains.
Drilling in 2013 will take place until the end of May, with an updated reserve and resource update, together with a new mine plan, to be released by the end of the summer. More than 77,700 metres were drilled next to the La Chicharra open pit gold mine last year, which is located 2 km west of the San Francisco pit.
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