Lake Shore Gold (LSG.T) has been quite the turnaround story for investors in the last year and the share price has responded. Management is delivering on production guidance and is generating free cash flow finance solution for shareholders. The stock is up close to 300% in 2014.
I have been listening to audio presentations from the Denver Gold Forum and it seems that the new buzz-phrase in the industry is now 'free cash flow'. The majority of companies were telling the audience how they plan on generating 'free cash flow'.
What is free cash flow?
Free Cash Flow = Operating Cash Flow - Capital Expenditures
The bottom line of any business should to be to create value (profits) for investors. The gold industry has gotten away from this the last couple years with high costs and declining metal grades.
Lake Share Gold is a company that has been a turnaround story and is now delivering for investors. The chart is one of the best in the gold space and they are one of the few companies currently generating free cash flow.
In the first 3 quarters Lake Shore has produced 142,500 ounces of gold. Production for the third quarter was 45,600 ounces up 58% from the quarter a year ago. The average material for the quarter came in at 4.6 grams per tonne. The grades definitely help with generating free cash flow as most companies are mining around the 1 gram per tonne level. Third quarter financials are not out yet but in the first half of the year Lake Shore generated $17.8 million in net earnings. On a price to cash flow ratio LSG comes in at around 3-4X which is lower than its peers.
Tony Makuch, president and chief executive officer of Lake Shore Gold, commented: "Our No. 1 priority for growing value is continuing to generate strong quarterly results and building on our track record of effective execution and operating performance. With that in mind, we are very pleased with our production in both the third quarter and first nine months of 2014, which achieved increases of 58 per cent and 72 per cent, respectively, from the same periods a year ago. Our solid production numbers so far this year have contributed to very competitive unit operating costs and to a rapid increase in our cash position, with cash and bullion at Sept. 30, 2014, totalling approximately $67.0-million. At the same time that we have grown our cash, we have also repaid approximately $20.0-million of debt, which has further contributed to increased balance sheet strength."
Congratulations to Tony and the team at Lake Shore Gold for delivering strong performance to shareholders in a tough market environment for gold companies. I hope to see many other companies operate efficiently and begin to create free cash flow for shareholders in 2015.
Symbol: LSG.T
Price: $1.08
Shares outstanding: 422.04M
Market cap: $455.8M
READ: Lake Shore Gold Produces 142,500 Ounces of Gold in First 9 Months of 2014
I have no position in any of the stocks mentioned. This is not investment advice. As always please do your own due diligence.