Timmins Gold (TSX: TMM; NYSE-MKT: TGD) has reported a second-quarter profit of US$3.2 million, or US2¢ per share, which is double the amount earned a year ago, but below the consensus estimate of US4¢ per share.
The year-over-year increase in earnings resulted from higher metal revenues, as the junior sold more ounces at a slightly higher average realized gold price.
Timmins Gold cranked out 32,932 oz. gold from its sole producing asset — the San Francisco heap-leach gold mine in Mexico — and sold 33,000 oz. at an averaged realized price of US$1,284 per oz., for US$42.4 million in revenue. This compares with 28,024 oz. produced and sold at US$1,253 per oz., for US$35.1 million a year ago.
Higher production followed an increase in throughput and implied recovery, offsetting a 20% year-over-year drop in grade, Cowen and Co. analyst Adam Graf notes.
Since the first quarter the San Francisco mine has run near its 24,000-tonne-per-day capacity, Graf says. But production since the first quarter fell 6%, mainly due to lower grades.
The average processed grade in the second quarter was 0.065 gram gold per tonne, down from 0.71 gram gold in the first quarter and 0.081 gram gold a year ago.
The declining grades pushed up operating costs. Total cash costs per ounce on a by-product basis were US$730 versus US$705. This is a 4% increase over the prior year, company CEO Bruce Bragagnolo said on a conference call.
All-in sustaining cash costs on a by-product basis jumped nearly 8% to US$928 per oz.
The company notes all-in costs were also impacted by higher corporate and administrative expenses of US$61 per oz. related to a proxy contest with dissident shareholder Sentry Investments.
Timmins Gold settled the dispute in early July by agreeing to a board shake up. The eight-member board will contain five new faces.
Commenting on the decline in grades, Graf says the company has been processing grades over the average reserve grade by stockpiling lower-grade ore. However, given the recent ability to produce at capacity, the mine will process more lower-grade ore.
“We are predicting our cash costs will increase slightly, as we move towards processing at reserve grades,” Bragagnolo says.
The mine consists of the producing San Francisco pit and the La Chicharra pit, which the company plans to put into production. Reserves in the San Francisco pit stand at 1.27 million oz. gold grading 0.56 gram gold per tonne, while La Chicharra holds 316,000 oz. gold at 0.50 gram gold.
The junior is looking at ways to increase throughput, while deferring the installation of a third crusher, estimated to bring throughput to 30,000 tonnes from the current 24,000 tonnes per day.
“We are estimating for another $2.5 million [investment in the primary crusher]. We might be able to get another 2,000- to 4,000-tonne-per-day throughput. We are just looking at that right now to see if that is going to be effective.
“But any increase in tonnage is going to give us a decrease in cash costs, just because we will be spreading the fixed costs over more ounces,” Bragagnolo explained.
Quarterly earnings from operations were US$7.2 million — up US$3.8 million owing to higher revenue — along with the fact the company didn’t have to take a US$5.5-million impairment charge that it took in the second quarter of 2013, on the back of lower gold prices.
Timmins Gold’s cost-saving initiatives to date and the higher metals revenue has added nearly US$12 million to the balance sheet in the second quarter. It ended June 30, 2014, with cash and equivalents of US$56 million, up from US$14.4 million the year before.
“Overall, it has been a successful quarter,” Bragagnolo said, adding the company expects to repay the remaining $13 million of its Sprott Resource loan by year-end.
Timmins Gold is on track to reach its 2014 guidance of 115,000 to 125,000 oz. gold, Graf says, but cautions that “until expansion activities resume at the mine, Timmins Gold shares show little room for growth.” Graf has a “market perform” rating and a $2.32 target.
Timmins Gold closed July 29 down 3¢ at $2.01 per share.
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