Timmins Gold adjusts to lower metal prices

VANCOUVER — Timmins Gold (TSX: TMM; NYSE-Arca: TGD) is striving for operational stability at its San Francisco open-pit gold mine in Sonora state, Mexico. The company announced cost-saving measures in April 2012 and has shown consistent operational improvements, with San Francisco recording a 19% year-on-year jump in production during the second quarter.

Just over a year ago Timmins aimed to control operating costs during San Francisco’s ramp-up, which should see the mine running at 24,000 tonnes per day by October. The company renegotiated its mining contracts and locked down a four-year cyanide-supply arrangement at US$3.50 per kg. Timmins was aiming for a US$50 per oz. drop in average cash costs.

Operations have definitely improved for the company over the past year. Timmins reported record production during the second quarter at San Francisco. The mine cranked out 28,000 oz. gold, with mill throughput up from 1.3 million dry tonnes in the second-quarter of 2012 to 1.9 million tonnes in the past three months.

CEO Bruce Bragagnolo says that the benefits of stability were apparent and that production met expectations, while “the move to twelve-metre lifts from eight metres caused a slight delay in the number of ounces coming out of the leach pads — however, this has now stabilized.”

Since the drop in gold prices, Timmins has undertaken a second operational review to reduce spending and costs. Modifications include increasing throughput at the company’s crushing circuit by adding a larger crusher and screen for a $3-million investment. Timmins also installed a new carbon strip column in the quarter, and tacked on 25 hectares of new leach pads.

The company may achieve its goal in regards to average cash costs. In mid-2012 Timmins was mining gold at San Francisco at around US$758 per oz. During the first quarter the company produced 28,000 oz. gold at cash costs of US$703 per oz. on a by-product basis, which resulted in a 150% earnings jump year-on-year to a quarterly record of US$14.3 million, or 10¢ per share.

Timmins is hard at work on a reserve and resource update at San Francisco, which the company expects to release in tandem with a new mine plan by September. Timmins has completed 207,000 metres of drilling at its San Francisco and La Chicharra pits, with drill highlights including 72 metres grading 1.6 grams gold per tonne from 187 metres depth in hole 3115, and 27 metres of 2.5 grams gold at 162 metres depth in hole 3052.

The company intends to use a base case of US$1,100 per oz. gold for its reserves and US$1,200 per oz. for its new mine plan. Timmins has also received crushing equipment on-site for the third stage of its planned expansion, which would bump mill throughput to 30,000 tonnes per day. The company has deferred more ramp-up at San Francisco until it finishes updating its mine plan. Timmins’ growth strategy aims to hit 125,000 to 130,000 oz. gold this year, at average cash costs between US$700 and US$750 per oz.

Timmins reported US$27 million in cash at the end of the first quarter, after earning US$22 million in cash from its operations.