Posted on 17 March, 2010 | 65 Comments
Frontwater Capital Watch List
Date: March 17, 2010
Author: Jeff Kaminker PM, CFA, MBA, P.Eng
Lake Shore Gold Corporation (LSG – TSX)
Lake Shore Gold is a Canadian junior gold company that is focused on bringing its 100% owned Timmins Mine in Timmins, Ontario, into commercial production by the fourth quarter of 2010. Lake Shore also carries out advanced exploration at its portfolio of properties in the Timmins camp.
Lake Shore Gold trades at a discount relative to other junior development gold companies and mid tier producers. We believe that Lake Shore should trade at higher multiples given the expected rapid growth in production at an attractive mining jurisdiction. The company plans to grow from 65,000 oz of gold in 2010 to mid tier levels of 350,000 oz of gold in 2013. Lake Shore plans to achieve its growth through the acquisition and development of high-grade gold projects within the Canadian Shield. Lake Shore has been actively consolidating the Timmins mining camp and has done several acquisitions in recent months.
Although Lake Shore recently guided to lower production in 2010 (down to 65,000 oz of gold from 100,000 oz of gold), the revised 2010 production estimate reflects a change in priorities focusing on the preparation of 43-101 compliant resource estimates at Thunder Creek and at Bell Creek where the company confirmed the presence of a large new gold system.
Lake Shore is carrying out advanced underground exploration programs at its 100% owned Bell Creek Complex and Thunder Creek properties and continues to invest aggressively on exploration with plans to spend approximately C$31 million in 2010. Lake Shore expects that the additional development and infrastructure work will position the Company to maximize and sustain annual gold production at both Thunder Creek and Bell Creek. As of December 31, 2009, Lake Shore had C$132.9 million in cash and no debt and is in good position to finance its planned expenditures.
In addition, Lake Shore is likely a take-over target. Hochschild Mining plc (a mid tier gold producer listed on the London Stock Exchange) owns 36% of Lake Shore. Hochschild’s ownership in Lake Shore remains limited to 40% of until the expiration of a stand-still agreement on November 22, 2010. We anticipate that Hochschild will likely increase its stake in Lake Shore or buy the entire company at that point.
We believe this is a good buy opportunity as we believe Lake Shore will either get taken over or get re-rated as it continues to increase production and reach mid tier status.
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