Lake Shore Gold Achieves Targets

On June 27, 2013, CymorFund Recommended Lake Shore Gold @ $0.28

 Ingots gold

Since then lake Shore Gold (LSG-TSX) has achieved exactly what CymorFund anticipated. The price reached $1.00 yesterday which is a 4-Bagger (so far). Today, there was a sell off in all the gold stocks, and LSG also showed weakness.

 

Management Conference Call

Most companies after releasing results, convene a conference call with analysts where they discuss the company’s operations and results. CymorFund has copied and re-produced some of that conference call below. The entire call can be read or listened to at the Company’s website, or at Seeking Alpha.

 

What to Take Away

The company has done exactly what it was supposed to do. It is in a positive cash flow position, it is paying off debt, its costs are lowering, and its production is at the top end of expectations.

The extract follows:

Looking at 2013 one of our biggest accomplishments as we finished our mine mill expansion and we achieved full production coming into the September of last year. For the year we produced close to a 135,000 ounces which is up 57% from 2012. Our unit cost came down and our cash operating cost was $766 per ounce which would be our guidance for the year. In terms of all-in sustaining cost that came in at less under a $1140 per ounce and showed strong improvement throughout the year and very importantly we began generating net precash flow and also very importantly as we exited the year we’re in a strong position set to increase production again and lower our cost going into 2014.

Slide number 4, just a couple of highlights, our CapEx in 2013 came in at just $90.4 million, pretty much right on what we had targeted for the year. We also strengthened our balance in the year. We repaid 20 million of debt and extended the maturity of our stand-by line with Sprott and very importantly we began generating net free cash flow in the fourth quarter.

Turning to slide number 5, in the fourth quarter we did very well and in that quarter we had actually a record quarter in redemonstrated the potential of what we can produce in Timmins. We produced over 52,000 ounces of gold in the quarter that’s been processing 3500 tonnes per day at our mill. This is above the target levels at our mill, I say it we designed the mill but we planned it to be 3000 tonnes a day and we never achieved that target, we actually always beat it.

And we didn’t not only did we beat it from a throughput point of view but metallurgical the plant has been an average in excess of 95% gold recovery so it’s been successfully metallurgical and we have lowered our operating cost and the plant have been very successful from a efficiency point of view as well.

In terms of the quarter in Q4 also, now just in the quarter our cost were very low and again that demonstrates the ability of what our cost can be as we go into the future. Our cost were just over $600 per ounce and our all-in sustaining cost were $850 an ounce. Our capital programs for the most part building out what we were building in Timmins West Mine and our Bell Creek Mill are behind us now. The capital fell off with only $10 million being invested in the quarter and it was all sustaining cost and it kind of gears up to targeting to what we’re going to spend in capital in 2014 and I think the biggest thing we did was we added almost $20 million of internally generated cash flow into our balance sheet in the quarter.

Now going on to slide 6, moving forward now in fact [ph] where does this all get us coming into 2014, well we like what we see. We have two full months into 2014, we’re already having an exceptional quarter and leading into an exceptional year. We have increased our cash and bullion already by $7 million in the first two months of this year to about $242 million. We have already produced a 30,000 ounces of gold between January and February and actually pour that many ounces of gold as well and we’re on track for a solid first quarter and to produce between 160,000 and 180,000 ounces this year with our all-in sustaining cost as we have given of around a $1000 an ounce. Our guidance assumes we’re going to process something between 3200 to 3300 tonnes a day at grades equal to what we have given demonstrated in our reserve grade now somewhere 4.6 to 4.8 grams per tonne.

The margins we’re getting will provide considerable cash flow even at low gold prices and we’re highly leveraged with gold price with every $100 an ounce in Canadian dollar terms increasing our cash by $16 million to $18 million for the year.

Slide 7 now looking further out, the longer term for cash flow looks equally bright. We’re not focusing now in the long term over the next few years on growing production, we’re really working now on sustaining production, spending some time on stabilizing and operating efficiency to pay down our debt and on sending ourselves up with the long term future as we go back and exploring, discover new deposits and/or advance our other deposits.

The base on the resources that we have that we released, we are well positioned for five years at current rates of production and that’s good over this period we expect our all-in sustaining cost to be below a $1000 an ounce with the infrastructure and the mines that we built and the mill plant that we have. We expect the capital of cost to be fairly minimal and manageable over this next period of time and as a result we expect to generate free cash flow over this period of time and sufficient cash flow even at low gold prices again to pay down all our debt and to build up our cash position significantly and to fund internally any exploration or any future activities we might want to do.

So one of the most important things, exciting thing from my perspective is that is the fact that now we’re in a position to get go back and turn on the drills and get back and resume program of exploring and building out of our deposits. We think we have lot of opportunities to add to our resources and reserves and I will talk a little bit about that little bit more shortly.

 

Hold Lake Shore Gold

The company has become a solid cash flow machine, and the stock price should reflect this.

 

 

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By Larry Cyna

Mr. Cyna is an accomplished investor in the Canadian public markets for over 20 years, and has managed significant portfolios. He is a financing specialist for private and public companies, and has expertise in real estate and debt obligations. He has assisted private companies accessing the public markets, has been a founding director of public companies and continues as a strategic consultant to selected clientele. He is and has been a director, a senior officer and on the Advisory Board of a number of TSX and TSXV public companies in the mining, resource, technology and telecommunications sectors, and the Founding Director of two CPC’s with qualifying transactions in mining and minerals. He was an honorary director of the Rotman School of Management MBA IMC program, has completed the Canadian Securities Institute Canadian Securities Course & Institute Conduct and Practices Handbook Course, was a former Manager under contract to an Investment Manager at BMO Nesbitt Burns, a roster mediator under the Ontario Mandatory Mediation Program, Toronto, a member of the Institute of Corporate Directors of Ontario, a member of the Upper Canada Dispute Resolution Group, and the Ontario Bar Association, Alternate Dispute Resolution section. He obtained his designation as a Chartered Accountant in Ontario in 1971 and was the recipient of the Founder’s Prize for academic achievement together with a cash reward. He became a CPA in the State of Illinois, USA in 1999 under IQEX with a grade of 92%. He is a Member of the Institute of Chartered Accountants of Ontario and the Canadian Institute of Chartered Accountants. He holds certificates in Advanced ADR & in Civil Justice in Ontario, Faculty of Law, University of Windsor, certificate in Dispute Resolution from the Ontario Institute of Chartered Accountants. Previous accomplishments are Manager of Cymor Risk Consultants LP specializing in Risk Management Assessment; CEO of Cyna & Associates specializing in mediation and ADR; Founder & Senior Partner of Cyna & Co, Chartered Accountants, a fully licensed and accredited public accountancy firm with international affiliations; and was a partner in a large public accountancy firm. Mr. Cyna is well known in the Canadian Investing community. He is invited to, and attends presentations given by public companies usually 3 or 4 times each week. These presentations are intended by the various hosting companies to present their inside story to sophisticated parties and Investment Managers for the purpose of attracting funding, or of making parties more interested in acquiring shares of those companies. Being a part of this keeps Mr. Cyna deeply involved in the current market and leads to numerous investment opportunities.