Timmins Gold Corp. (TSE:TMM) received initial coverage from Stonecap Securities, which handed out an “outperform” rating and a one-year target price of $3.20 – up considerably from the current price of $1.79 per share.

The junior gold producer is seen by Stonecap to be “operationally back on track and refocused on expansion”.

Stonecap analyst Brian Szeto said the company is well on its way to 130,000 ounces per year of production at its San Francisco mine located in Sonora, Mexico.

The company’s objective is to expand the current reserves and the lifespan of the San Francisco Mine, advance its other gold exploration projects and make strategic acquisitions.

After successfully increasing the capacity at the mine to 18,000 tonnes per day (tpd), the company is now aiming to again increase the capacity to 22,000 tpd.

According to Stonecap, in 2012 the company should produce just shy of 100,000 ounces and has a medium term goal of producing 130,000 ounces per annum going forward once they reach 30,000 tpd.

Szeto noted that when commercial production initially began at the San Francisco project in April 2010, Timmins gold had barely more than one million ounces at the property.

“However, the company has been very successful in adding ounces to the deposit where the total global resource now sits just under three million ounces, he said, adding, “With San Francisco and La Chicharra both open along strike to the northwest and southeast, the opportunity to keep adding ounces through exploration drilling looks promising.”

Szeto said the company represents “an intriguing investment opportunity” as the company actually has eight exploration projects spread over Sonora, Zacatecas, and Nayarit, which in aggregate represent more than 140,000 hectares of land in addition to the company’s 200,000-hectare land package at San Francisco.

Stonecap also said it believes that with Timmins Gold’s “operations back on track”, the company will once again make mergers and acquisitions a priority “as it tries to grow its production profile externally”.

Szeto said that although recoveries have been an issue for the company in the past, Timmins Gold has figured out the formula and investors should see its recoveries return to the mid to high 60s in the latter part of 2012.

From a financial condition perspective, Stonecap said the company is financially stable with cash and cash equivalents of $18 million as at the end of the first quarter of 2012. On June 21, 2012, the company signed a term sheet with Sprott Resource Lending, extending the term of its existing $18 million credit facility.

“Given the fact that we expect Timmins to generate in excess of $30 million in free cash flow in 2012, we anticipate that this debt facility will not be further extended beyond the new maturity date of July 28, 2013,” said Szeto.

Looking ahead, Stonecap said that upcoming catalysts for the company will include its second quarter financial results due out this month, announcement of a new mine plan in September, metallurgical test results at both San Francisco and La Chicharra in the third quarter and an update to investors on the exploration work currently underway at both San Francisco and some of its earlier stage projects in Mexico.

Additionally, Stonecap said of major importance is Timmins Gold’s plan to ramp up production to 22,000 tpd, which is expected to be completed by the end of the third quarter of 2012.

Szeto concluded: “Although there may have been some operational hiccups along the way, we believe that those days are largely behind us and the company is well on its way to 130,000 ounces per year of production.”

Timmins Gold is currently busy expanding the production rate at its San Francisco mine and conducting exploration work around the pit as well as its sizeable land holdings in Sonora, Zacateacas, and Nayarit.

Shares of the company were down 0.56 per cent as at about 11:50 a.m. ET, trading at $1.77.



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