Stonecap Securities issued a note on Timmins Gold (TSE:TMM) (AMEX:TGD) this morning based on the company's third quarter results release on Thursday, calling the gold producer one of the best performing stocks in its coverage universe.
"Timmins has been one of our best performing stocks in our coverage universe and is up 81% since we initiated coverage in August," notes Stonecap analyst Brian Szeto.
"We believe that the company has done a formidable job of rectifying the operational hiccup that it had in 2011 and is now a cash flowing machine that could generate free cash flow of up to US$54 million starting next year."
Indeed, the precious metals producer saw another strong quarter as it tripled its earnings per share, with metal revenues rising 48 per cent.
For the three months that ended September 30, the Mexico-focused gold producer reported earnings of $13.1 million, or 9 cents per share, compared to $3.6 million, or 3 cents per share, a year ago. This was above Stonecap's estimates, the capital markets firm noted.
Profit from operations at its San Francisco gold mine in Sonora, Mexico was $18.3 million, compared to $10.3 million during the same prior year period.
Metal revenues rose 48 per cent to $41.7 million, as the miner sold significantly more gold and silver. Gold ounces sold totaled 25,153, up from 16,917 a year earlier, while silver ounces sold amounted to 13,857, from 8,640 in the third quarter of 2011.
The Canadian company produced a record 25,153 ounces of gold, up 46 per cent from a year ago.
Modifications to the existing crushing circuit, changes in Timmins' blasting patterns and optimization of its heap leaching process led to the stronger production results, which were previously announced in October.
Total by-product cash costs were higher at $715 per ounce, up from $580 a year earlier. The company said the increase in cash costs year-over-year was due to global price increases in consumables used in gold production, as well as increased quantities of consumables used due to higher output.
Szeto says the third quarter cash costs were in line with his expectations, and was well below the first quarter and second quarter of this year - which averaged US$759 per ounce.
Timmins reiterated its production guidance for the year of 100,000 ounces at a cash cost of between US$700 to 750 an ounce.
"We continue to expect production of 95,000 ounces at a cash cost of US$740/oz (was US$735/oz)," Szeto concludes.
Stonecap has a sector perform rating on the stock, with a price target of $3.70, and a projected rate of return of 15 per cent.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.