Ana Paula Heading for Production in 2018

Q: To what do you attribute your impressive YTD performance on the TSX and NYSE?

A: The main driver is of course the rise of the gold price, which has helped boost the stocks of the majority of gold miners around the world. However, we also made some internal changes that have helped drive the company forward. We altered our short-term production outlook and lowered costs across the board, enabling us to become a much leaner organization and, crucially, allowing us to pay off our debt. The San Francisco mine now has a tremendously strong projected cash flow, while the Ana Paula development project offers high margins and low CAPEX. Indeed, at Ana Paula we are now moving rapidly toward a full economic feasibility study and have already begun the process for applying for permits.

Q: What are the company’s expectations for the Ana Paula project in 2017?

A: Alongside a number of engineering firms we are completing a full feasibility study and we anticipate it will be ready before the end of 2017. The project is moving along very smoothly and we have found the state of Guerrero to be extremely favorable toward mining projects. There are metallurgical and geotechnical testing work being carried out in Canada and we hope to begin construction of the mine in 4Q17 or 1Q18 with operations to commence during 2018. The project should benefit from the proximity of Torex Gold’s El Limon-Guajes mine because many of the suppliers that we will need to deliver cyanide and diesel are already operating in the area. We also have an independent water aquifer and power commission infrastructure, so the project should not run into many hurdles when it comes to planning and construction.

Q: How much of a boost is the extension of the San Francisco mine’s life to 23 years?

A: The mine plan we have devised for the next few years is still conservative, based on a gold price of US$1,100-1,250/ oz. Our production target for 2016 is 90,000-100,000 gold ounces, although this will drop in 2017. We were originally planning to shut the mine down in September 2016 and the new mine plan delayed the stripping, which is a crucial step in extracting ore. Now we have extended the lifespan of the mine but we will still need to catch up on several operations that were either slowed down or halted entirely in preparation for the closure. It is fantastic news that we will be able to keep the mine open for the foreseeable future. We are carrying out extensive exploration work and although we do not yet have the numbers, we are optimistic that results at San Francisco in 2017 will be better than our markedly conservative projection.

Q: Why did you hire Grupo PEAL, an independent contractor, to handle the mine’s day-to-day operations?

A: When we were doing the pre-feasibility study on the San Francisco mine in 2009 we crunched the numbers and we decided that it would be far more cost-effective to hire a subcontractor instead of operating the mine ourselves. I strongly believe that gold producers should hire independent companies to handle certain aspects of their operations, especially on short-term mine projects like ours at San Francisco. Timmins Gold focuses on producing gold, whereas Grupo PEAL is a specialized contractor with extensive experience of managing open-pit operations.

Q: What was the strategic thinking behind the US$17.5 million sale of the Caballo Blanco project?

A: The main reason is that we had guaranteed debt that needed to be paid at the end of 2015 and so, despite the strong performance at San Francisco, we really had no choice but to sell Caballo Blanco. We were delighted to find a buyer in Candelaria Mining. It is a project with great potential in the state of Veracruz but at the time we decided to prioritize our two main projects – the San Francisco mine and the Ana Paula development project. The Caballo Blanco sale enabled us to pay all our guaranteed debt and in many ways laid the foundations for the strong performance the company has enjoyed in the last 12 months.