Record production for Lake Shore Gold

It was a record breaking year for Lake Shore Gold (TSX: LSG; NYSE: LSG) and the market finally seems to be taking notice.

After watching its stock price wallow along with its gold mining peers through much of 2013, the Timmins-based miner is starting off the New Year on the right foot as it announced record annual gold production of 134,600 oz. for all of last year.

That amount comes in at the top end of its stated guidance of 120,000 to 135,000 oz. for the year and investors applauded its success. In Toronto on Jan. 7 the company’s stock was up 7.4%, or 4¢, to 58¢ on 1.9 million shares traded.

All of those gold ounces came out of 952,700 tonnes of ore milled at an average head grade of 4.6 grams per tonne and it beat the previous year’s total by 57%. But the best news for investors is that Lake Shore says the upward production profile will continue through 2014. In fact it believes that production totals for this time next year could come in 34% higher than the current figure at 160,000 to 180,000 oz. of gold with total cash costs of US$675 to 775 per oz. and all-in sustaining costs of US$950 to 1,050 per oz.

That bullish forecast gains support from fourth quarter results, which showed that production continues to increases period over period, as the last quarter of the year was responsible for 51,700 oz. of gold, a total that more than doubles the amount produced for the fourth quarter of 2012, and set a quarterly record for the company.

All of that production is bulking up the miner’s cash reserves as the last quarter marked its first ever of generating net free cash flow. That free cash flow helped it finish the year with roughly $34 million in cash and bullion, compared to $15.2 million it had at the end of the third quarter.

Lake Shore is generating that mineral wealth from the Timmins gold camp as it operated the Timmins West and Bell Creek mines in the area. Ore from both mines is processed at its Bell Creek mill.

The fourth quarter production total managed to beat BMO Capital Market’s analyst Brian Quast’s estimate of 48,200 oz. of production.

Quast noted that operational momentum for the company has been positive for the last two quarters, and he expects to see this coming year’s total production to come in at the low end of the company’s guidance at the 161,000 oz. mark.

“Achieving the top-end of guidance would require some combination of mill throughput above nameplate capacity and a head grade above reserve grade,” Quast wrote in his research note.

He also notes that while he expects Lake Shore to be free cash flow positive at the spot gold price, the cash flow expected to be generated won’t be enough to repay a convertible debt that comes due in 2017.

Quast has Lake Shore Gold rated as ‘underperform’ with a 45¢ price target.