Primero craters as Q2 output, cash flow fall

VANCOUVER (miningweekly.com) – Half the value of Canadian precious metals producer Primero Mining’s NYSE-listed stock was wiped out on Thursday, after the company reported disappointing second-quarter results, indicating significant declines in output and cash flows.

The dual-listed company, with its flagship San Dimas mine, in Mexico, reported a narrower headline loss of $2.9-million, or $0.02 a share, which was in line with market forecasts, and an improvement over the adjusted net loss of $3.5-million, or $0.02 a share, in the comparable period a year earlier.

Revenues in the quarter fell 62% to $16.2-million, as a result of Primero selling 54% less gold-equivalent ounces (GEOs) from San Dimas. The company noted that Black Fox was classified as a discontinued operation and sold to McEwen Mining on Thursday.

Second-quarter output totalled 35 965 GEOs, down 27% from 49 500 GEOs produced in the year-ago quarter. Cash costs during the period were $852/GEO and, with all-in sustaining costs, came in at $1 262/oz.

San Dimas's output fell 55% year-on-year to 15 234 GEOs, owing to a strike impacting the operation, which was not resolved until April. There was a further 13-day suspension of milling activities in June, following the failure of an anchor block that was attached to a cable supporting the tailings pipeline suspension bridge.

Meanwhile, Primero revealed that it had received several proposals regarding a potential acquisition of San Dimas, but the proposals require a significant revision of the streaming agreement with Wheaton Precious Metals (WPM). Primero said that, at lower San Dimas production rates, the obligations under the current silver purchase agreement with WPM do not allow for a sustainable operation and the company has been in discussions WPM about a sustainable solution for all parties.

WPM said it was prepared to consider reasonable alternatives for a sustainable solution, but both companies warned that there could be no assurance that an acceptable solution would be achieved.

Primero noted that, despite significant investment at San Dimas, exploration efforts have not identified large replacement veins for the depleting Roberta and Robertita veins, and that without new large veins coming into production, or changes to the operating environment, mining rates above 1 800 t/d may not be possible.

Operating cash flow before working capital changes fell to $8.4-million, from $11.2-million at the end of the prior-year quarter.

Primero noted that, while it would use the $35-million generated by the sale of its Black Fox mine and complex in Ontario to repay debt, it would still have outstanding debt that matures in November, which will require additional funding or refinancing to repay in full. It has current debt of $66-million and long-term debt of $47-million, and total liquidity, as at June 30, of $22.1-million.

The NYSE-listed stock fell as low as $0.18 apiece on Thursday, the lowest ever.