Update: Lake Shore Gold Repays Credit Facility And Provides 2015 Guidance

| About: Lake Shore (LSG)
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Summary

Lake Shore Gold is repaying an expensive credit facility which will save the company $1.6M per year in interest expenses.

This isn't a surprise, as Lake Shore has been a cash cow recently, and repaying debt is the best option to spend the cash wisely.

The investment thesis doesn't change for now, but I'll have a closer look at Lake Shore Gold when determining my favorites for 2015.

One of the gold mining companies, Lake Shore Gold (NYSEMKT:LSG), which has surprised me very positively this year, has announced it has made arrangements to repay its $20M credit facility. This standby credit facility was provided by Sprott Resource Lending, and had a maturity date in November 2016.

By repaying the $20M principal amount early (plus the $1.4M in accrued interest), Lake Shore reduces its outstanding debt and will avoid more interest charges. The company estimates it will save roughly $2.4M over the remaining period of the debt. This repayment shouldn't come as a surprise, as Lake Shore has been drowning in its free cash flow, and paying off (expensive) debt is probably the best move it can make. Meanwhile, Lake Shore has also updated its production and cost guidance for 2015. The company thinks it will produce 170-180,000 ounces of gold at a cash cost of $650-$700/oz and an all-in sustaining cost of $950-$1000/oz. As Lake Shore has underpromised and overdelivered this year, I wouldn't be surprised to see the company beat its guidance in 2015, despite the expected lower grade of the processed ore, which will be around 4.4g/t. Even at the current gold price, Lake Shore should remain free cash flow-positive and continue to build its cash position.

Moreover, the company is planning an "aggressive" exploration program at the 144 Zone, which has yielded excellent results earlier this year, and I'm aiming to see a resource estimate to get a better understanding of the potential of the zone, as well as the geological structure. Lake Shore has recently closed a $15M flow-through financing, and all of those funds will have to be spent on the ground, so one can be sure that Lake Shore Gold will shift its exploration programs into fifth gear in 2015!

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