Timmins Gold (TSE:TMM) is a Canadian explorer and miner with substantial exploration and gold production interests along the Mojave-Sonora Megashear in Mexico. The Company has built an open pit and heap leach operation at the San Francisco Mine, which is targeting an annualized production rate of 100,000 ounces of gold in fiscal 2011, with plans underway to upgrade production to 130,000 ounces shortly thereafter.
Timmins has also announced plans to make strategic acquisitions at a time when many smaller resource companies are selling at substantial discounts as gold continues to hit new highs. Institutions including Sprott, Pacific Road, and Baker Steel appreciate this growth potential and hold over 50% of the issued shares.
The San Francisco open pit mine is located in Sonora, Mexico and encompasses part of the Mojave-Sonora Megashear, which runs parallel with the eastern coastline of the Gulf of Mexico. Timmins has also secured a number of concessions that cover 165,000 hectares, and extend for over 130 kilometres along this same trend that are mostly contiguous, and interweave between significant precious metals deposits at Cerro Colorado, El Chanate, and La Choya.
The San Francisco open pit hosts a NI 43-101 compliant Proven Reserve of 17,194,000 tonnes at 0.756 g/t Au for 418,000 ounces, and Provable Reserves of 17,738,000 tonnes at 0.635 g/t Au for 362,000 ounces, for a total of 780,000 ounces of gold. Measured Resources include 19,089,000 tonnes at 0.797 g/t Au for 489,000 ounces, and Indicated Resources of 23,442,000 tonnes at 0.658 g/t Au for 495,000 ounces for a total of 984,000 ounces of gold; plus an additional Inferred Resource of 10,308,000 tonnes at 0.628 g/t Au for 208,000 ounces of gold, all calculated at a cut-off grade of 0.131 g/t.
Geological characteristics of the deposit at San Francisco indicate that it is mesothermal in nature and has potential to extend to great depth. This may provide additional resource development opportunities below the open pit floor depth of 140 metres.
Production is expected to reach an optimum annualized operating rate of 100,000 ounces of gold, at a US$489 per ounce life of mine cost, within the current fiscal year. Start up operations in the prior fiscal year that ended in March of 2011, produced 65,000 ounces of gold at a cash cost of US$530 per ounce, producing revenue of C$84 million and cash flow of C$34 million.
Ore extraction and processing is carried out by contractors who utilize secondary and tertiary crushing systems that are rated to process 18,000 tonnes per day of ore that is crushed and ground down to under ½ inch in size. The reduced ore is then delivered to heap leach pads that cover 32 hectares and achieve a recovery rate of 70% of the gold content along with some silver credits. This gold is recovered through a carbon in leach circuit that produces gold doré that is then delivered to a smelter for final processing into high purity gold and silver bars.
An additional portable crushing system rated at 7,000 tonnes per day has been added to boost ore processing. One notable feature of operations so far is that the average grade of ore treated has exceed reserve estimates, with ore processed in the March quarter recording an average grade of 0.85 g/t Au, which exceeds the grade in the Proven Reserve category of 0.756 g/t Au, and the Provable Reserve of 0.635 g/t Au. This continues three quarters of above average gold grades in ore processed.
The Company is also having considerable success in defining additional resources on the eastern and southeastern side of the current open pit. Ongoing drilling over a strike line that extends for at least 500 metres includes TF910 which intersected 6.10 metres at 6.98 g/t Au, TF987 intersected 3.05 metres at 23.39 g/t Au, and TF1058 intersected 19.81 metres at 5.08 g/t Au. This resource will be included in an updated resource estimated that is due for completion prior to the end of the current calendar year.
This drilling is part of a much larger $15 million drilling program that has deployed 6 Rotary Core drills, and 3 Core drills for 160,000 metres of Rotary Core and 21,000 metres of Core drilling that will be completed between June and December of 2011.
Drilling is aimed at multiple targets and includes La Mexicana, which is approximately 6,000 metres directly north of San Francisco. La Mexicana contains a number of surface outcrops and exposed mineralization found in historic underground workings that contain quartz veins, veinlets and breccias, with gold values up to 8 g/t, that are identified along an 800 metre long strike line that trends from west to east. This zone will be trenched and sampled, so that defined targets can be drilled in the second half of 2011.
El Picacho is located approximately 20 kilometres to the southwest of San Francisco, and contains 6 targets where high grade gold mineralization has been defined at surface by mapping and sampling. These targets will be drilled immediately with 3,000 metres of Core, and 3,000 metres of Reverse Circulation drilling.
Norma is located 25 kilometres to the northwest of San Francisco and is directly on trend with the mineralization that has been developed at San Francisco. Norma covers 16,000 hectares and hosts 6,000 metres of mineralized strike. Reconnaissance drilling along this line at RCN-03 recorded 13.4 metres at 0.81 g/t Au and 12.3 g/t Ag, RCN-04 recorded 3.05 metres of 14 g/t Au and RCN-14 recorded 4.6 metres at 1.02 g/t Au.
Other concessions include the TIMM Claims at Zacatecas, which are located in Zacatecas in north central Mexico. These Claims are contiguous with claims held by Goldcorp (NYSE: GG) that cover the Penasquito gold deposit that hosts 17 million ounces of gold, and the Camino Rojo Project hosting 3.44 million ounces of gold and 60.7 million ounces of silver. The 45,000 hectare land package contains a similar geological setting to the Penasquito deposit and has returned surface samples assaying over 1 g/t Au, and over 450 g/t Ag.
Marc Johnson of M Partners, notes that Timmins is trading at an Enterprise Value of $302 per gold ounce, and at an Enterprise Value of 3.9 times 2013 cash flow multiple. Tara Hassan of National Bank notes that Timmins continues to trade at around 4.5 times cash flow, whereas its peer group is valued at 8 to 10 times cash flow, and is undervalued within its peer group.
The market also appears to be discounting the aggressive exploration and development program that is underway, and will play out over the coming months.