Toronto-based Lake Shore Gold (TSX: LSG; NYSE-MKT: LSG) says its strong operating results and growing cash position has helped it make a $10-million prepayment on a standby line of credit with Sprott Resource Lending Partnership, reducing the outstanding principal to $20 million.
This brings Lake Shore’s debt repayment so far this year to $16 million, with the other $6 million paying down its gold loan, also with Sprott. Lake Shore has $15 million left on the gold loan, reducing the total debt that it owes Sprott to $35 million.
Haywood Security analyst Kerry Smith says the company has until November 2016 to pay the outstanding $35 million, and believes it will have no problem doing so.
“At our gold-price assumption of US$1,300 per oz., Lake Shore will generate enough cash to repay all its debt obligations in our model,” he writes.
On June 3 Lake Shore’s cash and bullion balance was $60 million, before the $10-million repayment made a day later. The cash position includes $5 million that the company raised from a non-brokered flow-through financing in late May.
These proceeds will fund the company’s drilling efforts outside of its operating mines. The 144 property, near Timmins, Ont., remains the junior’s top exploration target for this year and 2015.
Lake Shore operates the Timmins West and Bell Creek mines in the Timmins gold camp of northern Ontario. Its recently expanded Bell Creek mill processes ore from both mines at a rate of 3,000 tonnes per day.
The two assets churned out 44,600 oz. gold in the first quarter, marking a 92% increase from a year ago. Total cash costs and all-in sustaining costs were US$680 and US$960 per oz.
Lake Shore expects production in the second quarter to be higher than the first, with results due in July.
Lake Shore is guiding full-year production of 160,000 to 180,000 oz. at cash costs of US$675 to US$775 per oz., and all-in sustaining costs of US$950 to US$1,050 per oz.
The company’s CEO Anthony Makuch said the firm has enough funds to finance its 2014 capital, operating and exploration programs, even as it pays down its debt.
Lake Shore is targeting total debt repayments of $25 million this year.
“Lake Shore’s cash balance today is improved from the $38.8 million balance at the end of first-quarter 2014. Following the mill expansion and numerous operational improvements, Lake Shore is now generating net-free cash flow of $5 million to $7 million per month,” Smith writes in a note. He has a “buy” and a $1.15 target on the stock, but cautions that the company’s “capital structure includes more leverage than its peers.”
BMO analyst Brian Quast has an “underperform” rating and a 75¢ target.
Lake Shore shares closed June 6 up a cent at 82¢, within a 52-week trading range of 16¢ to $1.
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