Timmins Gold Corp.
TSX : TMM
NYSE Amex : TGD

Timmins Gold Corp.

November 23, 2011 09:30 ET

Timmins Gold Corp.: Updated Mine Plan and Increased Production Schedule for the San Francisco Mine in Sonora, Mexico

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Nov. 23, 2011) - Timmins Gold Corp. (TSX:TMM)(NYSE Amex:TGD) announces the completion and filing of the technical report titled NI 43-101 F1 Technical Report Updated Resources and Reserves and Mine Plan for the San Francisco Gold Mine Sonora, Mexico, dated November 1, 2011, prepared by Micon International Limited of Toronto ("Micon"). The Technical Report was prepared to update the previous technical report dated November 30, 2010 and to provide a base case scenario for increased production at the San Francisco Mine as a result of rising gold prices and a 104% increase in the estimated mineral reserves at the mine.

Highlights - Projected Results

  • Total gold production of 810,065 ounces from 2011 to 2017
  • Expansion of crushing facilities from 18,000 tonnes per day to 32,000 tonnes per day in 2012
  • Average annual production of approximately 130,000 ounces of gold from 2012 to 2017
  • Base case life of mine cash costs of US$633 per ounce
  • Life of Mine Operating Profit of $455 million
  • Strip ratio of 2.1

Commenting on the Technical Report's results, Timmins Gold President Arturo Bonillas said: "The Technical Report continues to confirm the robust economics of the San Francisco Mine. The increase in the mineral reserves at the San Francisco Mine has been obtained from the successful drilling undertaken up to June 30, 2011 and higher gold prices. The decision to increase the capacity of the crushing system to 32,000 tonnes per day has been derived from a number of factors, including the successful drill program and resulting increase in estimated reserves, rising gold prices and the commensurate decrease in cutoff grade, and management's conviction that additional reserves are likely to be established in and around the pit and at La Chicharra as a result of the extensive drilling program of over 100,000 metres completed in the second half of 2011, the results of which are not yet incorporated into the Technical Report. A further updated NI 43-101 Technical Report incorporating drilling from July 1, 2011 is scheduled for completion in Q1 2012."

Proven and Probable Mineral Reserves within the San Francisco and La Chicharra pits with Topography at June 30, 2011, Gold price US$1,100 per ounce
PIT Ore
Type
Metric tonnes (1000) Gold
g/t
Contained
Gold Ounces
San Francisco Pit Proven 42,850 0.604 831,000
Probable 21,395 0.556 383,000
Total 64,245 0.588 1,214,000
La Chicharra Pit Proven 6,180 0.447 89,000
Probable 1,966 0.439 27,000
Total 8,146 0.445 116,000
Total Proven 49,030 0.584 920,000
Probable 23,361 0.546 410,000
Total 72,391 0.572 1,330,000
  1. Mineral reserves are based on a gold price of US$1,100 per ounce
  2. Reserve includes a dilution factor of 8.3%
  3. An internal cutoff grade of 0.14 g/t gold was used for proven and probable reserves
Table 2
Mineral Resource Estimate with Drill Data as of the end of June, 2011 (Inclusive of Mineral Reserve)
PIT Ore
Type
Metric tonnes (1000) Gold
g/t
Contained
Gold Ounces
San Francisco Pit Measured 42,546 0.640 876,000
Indicated 22,698 0.595 434,000
Total Measured & Indicated 65,244 0.625 1,310,000
Inferred 66,483 0.420 898,000
La Chicharra Pit Measured 6,158 0.488 96,000
Indicated 2,222 0.488 35,000
Total Measured & Indicated 8,380 0.488 131,000
Inferred 7,197 0.465 107,000
Total Measured 48,704 0.621 972,000
Indicated 24,920 0.586 469,000
Total Measured & Indicated 73,624 0.609 1,441,000
Total Inferred 73,680 0.424 1,005,000
  1. Mineral resources are based on a gold price of US$1,200 per ounce
  2. An internal cutoff grade of 0.128 g/t gold was used for measured & indicated and inferred ounces
  3. The inferred resources include material outside of the pit shell. It has the potential to become additional reserves of the San Francisco mine at a future stage.

The Mineral Reserves are based on a gold price of US$1,100 per ounce. The reserve includes a dilution factor of 8.3% that takes into account the dilution of partially mineralized blocks in the model. An internal cutoff grade of 0.14 g/t gold was used for the proven and probable reserve estimate. Weighted average LOM gold recovery is estimated at 68.6% based on the new geological model and the respective metallurgical recoveries for each rock type generated for the deposit.

ECONOMIC EVALUATION

Metal Price Forecast

It can be seen that, at a gold price of US$1,200/oz, the San Francisco project exhibits robust economics over its projected remaining life of approximately 5.5 years. The life-of-mine average cash cost of producing gold is estimated at US$633/oz, and future capital expenditures are forecast to be relatively low.

Revenue projections are based on a constant gold price of US$1,200/oz in real terms, closely approximating the 3-year trailing average price but significantly lower than current spot prices. Accordingly, the sensitivity of the project to a gold price in a range of up to US$1,500/oz has also been evaluated. The economic analysis indicates that the project will yield present values of US$252 million at a discount rate of 5%/y and US$232 million at a discount rate of 8%/y. The expansion capital schedule principally in 2012 will be paid back rapidly through accelerated cash flows.

Base Case

The base case evaluation has been made for a nominal throughput rate of 32,000 tonnes per day, which is expected to be achieved in 2012. A summary of the base case life-of-mine statistics and annual cash flows are summarized in the table below.

Discounted Cash Flow Analysis of the San Francisco project
2011 2012 2013 2014 2015 2016 2017 Total
Gold Produced (ounces) 24,765 128,062 155,939 147,840 149,189 135,751 72,590 814,136
Payable Gold (%) 99.5 99.5 99.5 99.5 99.5 99.5 99.5 99.5
Payable Gold (ounces) 24,641 127,421 155,160 147,101 148,443 135,072 72,227 810,065
GOLD PRICE (US$/ounce) 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200
CASH REVENUE AND EXPENDITURE (US$ thousand)
Gross Revenue from Gold Sales 29,569 152,906 186,192 176,521 178,132 162,087 86,672 972,078
Less: Freight, Insurance, Refining (US$5/ounce) 124 640 780 739 746 679 363 4,071
NET SMELTER RETURN 29,445 152,265 185,412 175,782 177,386 161,408 86,309 968,008
Operating Cost - Mining ($1.82/tonne mined) 11,346 54,232 59,474 62,421 62,419 59,689 16,611 326,191
Operating Cost - Rehandling ($0.50/tonne rehandled) 0 0 0 0 0 0 2,105 2,105
Operating Cost - Crushing ($1.25 to $1.20/tonne leached) 1,824 9,392 13,943 13,940 13,939 13,939 9,662 76,640
Operating Cost - Leaching ($0.97 to $0.94/tonne leached) 1,415 7,514 10,922 10,920 10,919 10,919 7,569 60,178
Operating Cost - Gold Recovery ($0.37 to $0.30/tonne leached) 540 2,661 3,486 3,485 3,485 3,485 2,416 19,557
Operating Cost - Laboratory ($0.23 to $0.14/tonne leached) 336 1,565 1,627 1,626 1,626 1,626 1,127 9,534
Operating Cost - Environmental ($0.05 to $0.03/tonne leached) 73 313 349 349 348 348 242 2,022
Operating Cost - General and Administration 675 2,700 2,700 2,700 2,700 2,700 2,700 16,875
Total Operating Cost 16,208 78,378 92,500 95,441 95,436 92,706 42,432 513,102
Unit Operating Cost ($/tonne leached) 11.1 10.0 8.0 8.2 8.2 8.0 5.3 8.0
Unit Operating Cost ($/ounce payable gold) 658 615 596 649 643 686 587 633
OPERATING PROFIT 13,237 73,887 92,912 80,341 81,950 68,702 43,877 454,906
Income Tax 3,893 20,863 26,356 22,317 22,442 18,456 11,009 125,336
Capital Expenditure 3,323 18,997 3,575 3,575 3,575 75 33,120
Reclamation and Closure 5,000 5,000
ANNUAL NET CASH FLOW 6,021 34,027 62,981 54,449 55,933 50,170 27,868 291,450
PRESENT VALUE OF CASH FLOW (discount rate 5%/year) 5,985 32,804 57,827 47,612 46,581 39,792 21,051 251,652
PRESENT VALUE OF CASH FLOW (discount rate 8%/year) 5,964 32,118 55,045 44,063 41,911 34,808 17,903 231,813
SCHEDULE OF TAXATION
Operating Profit 13,237 73,887 92,912 80,341 81,950 68,702 43,877 454,906
Depreciation 262 4,343 5,058 5,952 7,143 7,181 7,181 37,120
Taxable Income 12,975 69,544 87,854 74,389 74,806 61,521 36,696 417,786
Income Tax (30%) 3,893 20,863 26,356 22,317 22,442 18,456 11,009 125,336
* The Technical Report is an updated Pre-Feasibility Study

Sensitivity Study

Sensitivity of the NPV to changes in gold price, operating and capital costs has been analyzed. Revenues are directly proportional to gold price, recovery and grade. With an adverse change of 25% (i.e., a reduction in gold price to US$900 per ounce), NPV remains strongly positive. At US$1,500 per ounce, undiscounted cash flow is estimated at approximately US$462 million.

Sensitivity of the project NPV has also been determined for a specified range of gold prices.

Gold Price
(US$/oz)
Change from Base
(%)
Cash Flow and Present Value (US$ million)
Undiscounted
Cash Flow
Present Value
(5%/y discount)
Present Value
(8%/y discount)
900 -25 121 101 95
1,000 -16.7 178 153 141
1,100 -8.3 235 202 186
1,200 Base 291 252 232
1,300 8.3 348 301 277
1,400 16.7 405 350 231
1,500 25 462 399 368

CONCLUSIONS

The following is a summary of Micon's conclusions:

  1. Micon recommends that as Timmins continues to define the mineralized lenses in its new model for the deposit, it snaps the interpretation to the drill holes for better definition and interpretation accuracy of the mineral lenses.

  2. Micon recommends that Timmins composites the grades within each mineralized lens rather than from the collar of the drill hole down to the toe as is now the case.

Given the known extent of mineralization on the property, compared to the amount of mining activity, the San Francisco project has the potential to host further deposits or lenses of gold mineralization, similar in character and grade to those exploited in the past, outside the present resource base.

Micon has reviewed the proposed exploration program for the property and, in light of the observations made in the Technical Report, supports the concepts as outlined by Timmins. Given the prospective nature of the property, it is Micon's opinion that the San Francisco project merits further exploration and that Timmins' proposed exploration plans are properly conceived and justified.

Qualified Person

This press release was reviewed and prepared by Lawrence A. Dick, Ph.D., P.Geo, a director of the Company, who is recognized as a Qualified Person under the guidelines of National Instrument 43-101 and by Miguel Soto, P. Geo., a director and the COO of the Company. Pursuant to National Instrument 43-101, Mr. William Lewis, B.Sc., P.Geo., Mr. Mani Verma, M.Eng., P.Eng., Ing. Alan J. San Martin, MAusIMM., from Micon International Ltd, (Micon), of Toronto, Ontario are the independent Qualified Person responsible for the Mineral Reserve and Mineral Resource Estimate. Mr. Christopher R. Lattanzi, P.Eng of Micon International Ltd, (Micon), of Toronto, Ontario is the independent Qualified Persons responsible for the economic assessment and mining methods. Mr. Richard M. Gowans of Micon International Ltd (Micon), of Toronto, Ontario is the independent Qualified Person responsible for the mettallurgy section. Each of Mr. Lewis, Mr. Verma, Mr. San Martin, Mr. Lattanzi, Mr. Gowans, Mr. Dick and Mr. Soto have read and approved the contents of this news release. For further information please contact at 604-682-4002, or go to the website at www.timminsgold.com.

On behalf of the Board:

Bruce Bragagnolo, LLB, Chief Executive Officer

Cautionary Note Regarding Mineral Reserve Estimates

Timmins is subject to the reporting requirements of the applicable Canadian securities laws, and as a result we report our mineral reserves according to Canadian standards. Canadian reporting requirements for disclosure of mineral properties are governed by National Instrument 43-101 Standards of Disclosure for Mineral Projects ("NI 43-101"). The definitions of NI 43-101 are adopted from those given by the Canadian Institute of Mining, Metallurgy and Petroleum. U.S. reporting requirements are governed by the SEC Industry Guide 7 ("Guide 7"). These reporting standards have similar goals in terms of conveying an appropriate level of confidence in the disclosures being reported, but embody different approaches and definitions. For example, under Industry Guide 7, mineralization may not be classified as a "reserve" unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. In particular, we report "resources" in accordance with NI 43-101. While the terms "Mineral Resource," "Measured Mineral Resource," "Indicated Mineral Resource" and "Inferred Mineral Resource" are recognized and required by Canadian regulations, they are not defined terms under standards of the SEC and generally, U.S. companies are not permitted to report resources in documents filed with the SEC. As such, certain information contained in this press release concerning descriptions of mineralization and resources under Canadian standards is not comparable to similar information made public by United States companies subject to the reporting and disclosure requirements of the SEC. In addition, an "Inferred Mineral Resource" has a great amount of uncertainty as to its existence and as to its economic and legal feasibility, and you cannot assume that all or any part of an "Inferred Mineral Resource" will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies. You are cautioned not to assume that all or any part of Measured or Indicated Resources will ever be converted into Mineral Reserves, and not to assume that all or any part of an "Inferred Mineral Resource" exists, or is economically or legally mineable. In addition, the definitions of "Proven Mineral Reserves" and "Probable Mineral Reserves" under CIM standards differ in certain respects from the standards of the SEC.

Cautionary Note Regarding Forward-Looking Statements

Certain statements contained herein may constitute forward-looking statements and are made pursuant to the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995 and Canadian securities laws. Forward-looking statements are statements which relate to future events. Such statements include estimates, forecasts and statements as to management's expectations with respect to, among other things, business and financial prospects, financial multiples and accretion estimates, future trends, plans, strategies, objectives and expectations, including with respect to production, exploration drilling, reserves and resources, exploitation activities and events or future operations. Information inferred from the interpretation of drilling results and information concerning mineral resource estimates may also be deemed to be forward-looking statements, as it constitutes a prediction of what might be found to be present when, and if, a project is actually developed.

In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expects", "plans, "anticipates", believes", "estimates", "predicts", "potential", or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, level of activity, performance or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements.

While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggestions herein. Except as required by applicable law, Timmins Gold does not intend to update any forward-looking statements to conform these statements to actual results.

Neither the TSX nor its Regulation Services Provider (as that term is defined in the policies of the TSX) accepts responsibility for the adequacy or accuracy of this news release.

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