Lake Shore soars 56% on expected strong Q2

Lake Shore Gold (LSG-T, LSG-X), one of the weakest performers on the Toronto stock exchange last week  losing over 45%, soared 56% when the company said  it expects strong production and lower costs in the second quarter.

While the results are due in early July, Lake Shore announced output to date of 27,000 oz. gold, with over 25,000 oz. poured.

It forecasts full second-quarter production to exceed 29,000 oz. gold with grades averaging above 4 grams gold per tonne.

But BMO analyst Brian Quast expects a more conservative output for the quarter. He predicts production of 27,000 oz. based on an average processing rate of 2,400 tonnes per day grading 4.1 grams gold.

Cash operating costs will be released in the full financials in early August and should show a marked improvement over the March quarter, the company says.

In the first quarter, Lake Shore churned out 23,200 oz. gold averaging 3.8 grams from its Timmins West and Bell Creek mines near Timmins, Ont. Cash operating costs were US$982 per oz., including royalties.

Lake Shore says it’s on schedule to complete the ongoing expansion at its Bell Creek mill by September. This will push the current capacity of 2,500 tonnes per day to 3,000 tonnes a day.

“At that time, Lake Shore Gold will make the jump from being a net investor of capital to being a company that generates net free cash flow at the current gold price,” said Tony Makuch, the company’s president and CEO, in a statement.

Once the mill is fully expanded, annual production is anticipated to surpass 140,000 oz. with costs falling below US$700 per oz.

But for the full-year, Lake Shore is maintaining its production guidance of 120,000 to 135,000 oz. at cash operating costs of US$800–US$875 per oz. Capital expenditures for the year are estimated at $90 million. But following the completion of the mill expansion, Lake Shore’s capital investments should decline.  

Lake Shore closed June 24 in Toronto up 56%, or 9¢, at 25¢. It has a 52-week range of 16¢-$1.16.

Quast has a target of 40¢ and an “underperform” rating on the stock.