In light of recent broader market declines, has LSG capitalized on the risks that Ben identifies?

I think once reserves are proven up further, and stability (at least) returns to POG, we'll see a return to + $1.00 SP.

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Lake Shore Gold is currently a low cost gold producer with close to 200,000 oz. of annual production at its Timmins West and Bell Creek Projects, both of which are located in the Timmins Gold Camp in Ontario. This region of Ontario is home to several gold deposits and Lake Shore Gold has found several on its property. The company’s most recent discovery shows that there is a similar deposit to its Timmins West Deposit just a few hundred meters away, and the company can easily grow production assuming that this new deposit—the 144 Zone—does in fact parallel the Timmins West Deposit.

More generally Lake Shore Gold is confident that it will find several similar underground deposits on its property, and if this theory is true there could be numerous mines in the area which are producing at relatively low costs.

Lake Shore Gold had a phenomenal 2014 despite gold price weakness. Not only is it making discoveries but it brought its production costs down considerably along with its debt load. Furthermore the company is comfortably profitable at current prices. At 10X cash-flow the company appears to be inexpensive and it isn’t in danger if the gold price falls from here.

There are a couple of risks, however, but before I mention them keep in mind that I think they are relatively mild and that I think the long term prospects for this company are excellent, especially given the encouraging exploration results we’ve been seeing.

First, investors have flocked to the stock over the past year and a half and the stock has risen 6-X from its lows. I think a lot of the smart money buyers are sitting on enough profits so that profit taking makes sense.

Second, the company doesn’t have a large reserve base. There isn’t a large chance that the company runs out of reserves but if it does it could do so fairly quickly. I don’t think this is priced into the stock, which is currently assuming substantial reserve expansion or even production expansion from here.

Third, the company has very little room to improve after what we’ve seen in the past 18 months or so. Costs are down and production is up but I don’t think we can see this on a large scale in the near future.

But given these points this is a company that is extremely well positioned to generate cash-flow leveraged to the gold price with long term growth potential and a margin of safety that I think is valuable in this market environment. Given these points investors should consider putting the stock on their radars, but I wouldn’t buy it just yet.