Lake Shore Gold (TSX: LSG; NYSE-MKT: LSG) is moving in the right direction. The Toronto-based firm reported record quarterly and six-month production in the second quarter and first half of 2014 and now expects to reach the top end of its annual production guidance.
The company churned out 52,300 oz. gold in the June quarter, a 70% improvement from the same period a year ago, and a 17% increase over the March quarter. Those ounces came from 309,800 tonnes averaging 5.4 grams gold per tonne, with recoveries of 96.6%. Quarterly sales were 53,500 oz. at an average price of US$1,289 per oz.
Analysts from BMO Capital and Haywood Securities both note that the company’s quarterly production, beat their expectations due to higher mill throughput and grades.
Haywood’s Kerry Smith adds the company’s Bell Creek mill, which the firm expanded to 3,000 tonnes per day in late 2013, “continues to run very well.” Throughput averaged 3,280 tonnes per day over the first two quarters.
For the first half of the year, Lake Shore produced 96,600 oz. gold, roughly an 80% increase from the 54,000 oz. generated in the first half of 2013. Total mill throughput was 593,600 tonnes averaging 5.3 grams gold.
The higher output boosted sales. The company sold 96,500 oz. gold during the first half of 2014 at an average price of US$1,291 per oz. This compares to sales of 53,700 oz. at US$1,516 per oz. in the first half of 2013.
Based on the record output, Lake Shore now expects to reach the top end of its 2014 production target of 160,000–180,000 oz. gold at cash costs of US$675 to US$775 per oz.
“We are very pleased with our operating results in the first half of 2014, which include production, throughput and average grades all meeting or exceeding expected levels,” Tony Makuch, the company’s president and CEO, said in a release.
As a result, Lake Shore has generated significant free cash flow, pushing its cash and bullion position to $53 million at the end of June. It has also tidied up its balance sheet, paying back about $17 million of debt this year, including $10 million on its standby line of credit with Sprott Resource Lending Partnership.
“Supported by our growing financial strength, we have resumed drilling at our mines to grow reserves and resources and extend mine life,” Makuch added. The company operates the Timmins West and Bell Creek gold mines in the Timmins gold camp in Ontario. In addition, Lake Shore intends to start drilling its 144 property, located adjacent to its Thunder Creek deposit.
The firm will release its full financial results on July 31, 2014.
Smith has a “buy” and $1.15 target on the stock, while BMO’s Brian Quast has a more conservative view, with an “underperform” rating and 70¢ target.
Lake Shore closed July 4 up 3.7% at $1.10, and had a market cap of $464 million