News that Lake Shore Gold Corp. (LSG.TO) had increased the size of its previously announced public offering, on a “bought deal” basis, to C$90 million principal amount of convertible senior unsecured debentures, at a price of C$1,000 per debenture, with an interest rate of 6.25% per annum, hasn’t set well with shareholders as the company has seen shares fall to a low of 0.89 on Friday, this after closing Thursday’s session at 1.11.
The C$90 million is a jump from the original amount of C$75 million with the proceeds expected to be used to repay and extinguish the company’s US$50 million three-year corporate revolving facility and for general corporate purposes. This news triggered significant activity in LSG.TO on Friday with more than 7 million shares moving hands by mid-day, this after seeing volume of 838,000 on Thursday.
As part of the details regarding this public offering LSG.TO revealed that the Debentures will be convertible at the holder’s option into common shares of the company at a conversion price of C$1.40 per common share. While this instantly stokes fear of dilution it should be noted that the debentures will not be redeemable prior to September 30, 2015.
It would appear more reasonable for investors to take stock in the second quarter results produced by LSG.TO rather than Friday’s news. The gold mining company actually tripled their total revenue to C$40.7 million and saw gold production triple as well with 24,426 ounces delivered. In the company’s earnings report released on August 9, 2012 they said they remain on track to meet their 2012 production target of between 85,000 and 100,000 ounces of gold.
With gold prices inching higher this could prove very beneficial to LSG.TO and as the second quarter results show the increase in gold prices has already had a positive effect. In fact, gold prices climbed 7% compared the second quarter 2011, averaging $1,611 per ounce during the 2012 frame.
Additionally, LSG.TO managed to stay in line with their target for cash operating costs coming in at US$849 per ounce produced, right in the middle of their desired US$825 TO US$875 per ounce.
As for cash earnings from mine operations LSG.TO delivered impressive results in their second quarter 2012, reporting $16.8 million compared to $2.6 million for the 2011 second quarter. A perfect blend of increased gold sales, higher average gold price and lower cash operating costs were attributed as the keys to this massive spike. For the first six months of 2012 cash earnings have now hit $26.3 million, a jump from the $14.0 million generate during the first six months of 2011.
LSG.TO has forecasted an even brighter second half of 2012 which will put them on target to achieve their full-year production goal in the range of 85,000 to 100,000 ounces. To reach this level LSG.TO expects total capital spending for 2012 to hit $170-$175 million with approximately $85 million related to work at Timmins West Mine, $56 million to the mill expansion, $6 million of other milling costs, $16 million to advance Bell Creek and an additional $10 million for surface exploration drilling.
Lake Shore Gold has three wholly owned, multi-million ounce gold complexes in the Timmins Gold Camp and is in commercial production at both the Timmins West and Bell Creek mines, with material being delivered for processing to the Bell Creek Mill. As LSG.TO noted in their earnings report “development, ore delineation and stope preparation work was completed during the first half of 2012 with the capital program for development of Timmins West Mine on track to position the Company for higher levels of production in 2013.”
LSG.TO has been producing positive results over the past three quarters and if they are capable of achieving the goals and targets they have outlined for the remainder of the year their success should carry over into 2013.