Each week we screen corporate bond listings to find offerings with high yields and the lowest risk possible relative to projected returns. Sometimes we are attracted by a high yield on a bond issued by a solid-but-undervalued company. At other times, what catches our eye is a good yield on a bond that has the potential to convert to the common stock of a growing company.

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And once in a great while, we find bonds issued by a company that has made itself profitable despite a difficult environment for its main product. We consider these to be great opportunities, because a company that can do well in tough times has a high likelihood of doing very well when the market for its main product improves.

This is exactly the case with this week's recommendation of Lake Shore Gold (LSG) 6.25% convertible bonds, selling at a discount and indicating a yield to maturity of about 9%. In the past two years, Lake Shore Gold has completed a major mill expansion, increased its processing capacity by 50%, and made its operations free cash flow positive - all while the price of gold was declining by $300/oz.

These developments greatly increase our confidence in the safety of principal represented by these bonds. And, should the price of gold return to previous levels, the convertibility feature of these bonds presents an opportunity for significant gain.

About Lake Shore Gold

Lake Shore Gold was formed in 2002 as an explorer for gold and base metals in the Canadian Shield. It is now a production gold mining company, operating three wholly owned, multi-million ounce gold complexes in the Timmins Gold Camp. The company also has a number of prospective projects and exploration targets located in and around the Timmins Camp.

(The Timmins area is located in northern Ontario, Canada. It has produced over 70 million ounces of gold to date, making it one of the most productive gold camps in the world.) Lake Shore Gold's common shares trade on both the TSX and NYSE under the symbol LSG.

Increasing Gold Resources

Lake Shore Gold's operations involve three multi-million ounce gold complexes located in the century-old Timmins Gold Camp in northern Ontario:

• The Timmins West Complex is located 18 kilometers west of Timmins and hosts the Timmins West mine, as well as a development project and an exploration property.

• On the east side of Timmins, the Bell Creek Complex hosts the company's milling facility, as well as the Bell Creek Mine and a number of exploration properties.

• The company's third gold complex is the Fenn-Gib project, located approximately 60 kilometers east of Bell Creek. Fenn-Gib is an advanced-stage exploration project, which hosts a large, near-surface, potentially open-pittable resource and has excellent potential for further growth.

Over the last several years, the company has increased its "Measured & Indicated" and "Inferred" estimates of the gold available for production at Timmins West and Bell Creek, and the mine life expectancy is currently 9 to 10 years.

In addition, during the third quarter of 2013, the company completed a 50% expansion of its milling facility, increasing processing capacity from 2,000 tonnes per day to 3,000 tonnes per day. The expansion was immediately reflected in a record 51,700-ounce production for the fourth quarter of 2013.

We like companies that produce more…

In 2013, Lake Shore Gold produced 134,600 ounces of gold, a 57% increase over 2012.

In the fourth quarter of 2013, the company produced 51,700 ounces, more than double the production for the fourth quarter of 2012.

While lowering their cost of production…

In 2013, cash operating costs were US$766 per ounce sold, a 23% improvement on cash operating costs for 2012.

In the fourth quarter, cash operating costs were US$609 per ounce sold, a 38% improvement from the fourth quarter of 2012. "All-in" costs were US$1,139 for the year (a 37% improvement from 2012), and US$849 for the fourth quarter (a 52% improvement over the same quarter a year earlier). This compares quite favorably with other major gold producers, such as Goldcorp (GG), which had cash costs of $687 per gold ounce for 2013 and all-in sustaining costs of $1,031 for all of 2013. Low cost leader Barrick (ABX)'s all-in sustaining costs guidance for 2014 was $920-980.

And selling more of what they produce

The company's 2013 sales of 135,550 ounces were up 62% from 2012.

Even more impressively, the company's fourth quarter sales of 49,600 ounces represented an increase of 149% from the fourth quarter of 2012.

We like companies with increasing cash flow from operations

The processing capacity available after the completion of the mill expansion significantly increased cash flow from operations.

The table compares LSG's increasing cash flow to the price of gold from 2011 through the first quarter of 2014:

Lake Shore Gold consistently increased its cash flow from operating activities in each successive year, despite a fluctuation in the price of gold (and a substantial fall in that price throughout 2013). A company that does well when the price of its main product (GOLD) is falling is likely to do even better if the price of that product recovers.