Monday, December 24, 2012

Lake Shore Gold (LSG) Produces And Explores

Lake Shore Gold (LSG / LSG.TO) is a junior mining company that is actually producing gold.  The CEO is a mining engineer.  That's good.  The rest of the team has an interesting mix of mining-related experience.

Since they're in production at their Timmins West project, the important factor now is the cash cost of production at $970/oz.  The good news is that Timmins West's extraordinarily high grade of 5.21g/ton makes production very much worthwhile.  The bad news is that this cost is far above gold's historical average price.  Inflationary central bank policies that keep the gold bull market roaring will drive this company's valuation until they can reduce those costs to a sustainable level.

The stock is still low-priced because the production at Timmins West can potentially subsidize their other exploration properties.  That's fine as long as Lake Shore Gold delivers positive earnings overall.  They have not done so yet.  Their Q3 financial statements for 2012 show net losses of about C$2.6M per month (a rough average of their three-month and nine-month loss rates).  It's good that they have C$83.5M in cash in hand, enough for more than two years.  Investors shouldn't have to wait that long for the company to either find decent grades at its other exploration properties or drop them and focus on Timmins West.  I await the outcome of that decision.

Full disclosure:  No position in Lake Shore Gold at this time.