Primero stock tanks to new 52-week low as operational challenges persist

VANCOUVER (miningweekly.com) – Canadian precious metals producer Primero Mining has reported weak third-quarter results, prompting it to lower its full-year production guidance and causing its TSX-listed stock to drop 28% on Wednesday to a new 52-week low.

Toronto-headquartered Primero reported a net loss of $11.7-million in the quarter ended September, compared with a net loss of $5.4-million in the comparable period a year earlier, as lower earnings from mine operations and a $3.2-million tax expense resulting from the devaluation of the Mexican peso, compared with the US dollar, weighed.

Excluding special items, the company's adjusted net loss was $8.1-million, or $0.04 a share, compared with an adjusted net income of $2.4-million, or $0.02 a share, for the same period in 2015. This result missed Wall Street analyst forecasts of earning $0.02 a share.

Consolidated revenue fell 28% year-on-year to $57-million.

Primero reported total output of 44 684 gold equivalent ounces (GEOs), comprising 22 162 oz of gold and 1.37-million ounces of silver from San Dimas, in Mexico, and 16 230 oz of gold from Black Fox mine, in Northern Ontario, which was 10% lower than the 49 499 GEOs produced in the prior quarter.

At San Dimas, production during the third quarter was affected by high unplanned worker absences owing to labour disruptions and not achieving mine plans, which resulted in reduced underground development rates and which delayed certain ventilation improvement projects. As a result, access to certain high-grade areas of the San Dimas mine was limited, the company reported.

"We are extremely disappointed with our third-quarter operating results from our San Dimas mine, in Mexico. We had expected to maintain the production levels achieved in Q2 but were impacted by unexpected labour disruptions and reduced development rates, which affected average head grades," stated president and CEO Ernest Mast.

He added that, in October, Primero experienced intermittent work stoppages that affected mining rates and increased the development backlog that the company had previously expected to resolve.

Compounding matters was a ten-day outage at the Las Truchas hydroelectric facility, owing to a weld failure in the water feed pipe, further delaying mine development works.

Primero has reduced its guidance for the fourth time this year. It now expects to produce between 170 000 GEOs and 190 000 GEOs, down from a previous estimate of 195 000 GEOs to 215 000 GEOs. The company has also revised its all-in sustaining costs outlook to between $1 350/oz and $1 400/oz of gold.

Primero advised that it was currently considering potential divestitures of noncore subsidiary assets such as the potential sale of the Cerro del Gallo development project, also in Mexico.

Desjardins Capital Markets analyst Michael Parkin said in a note to clients that the company had a strained liquidity outlook that could force it to raise capital in the first quarter of 2017, adding to its risk profile.

Primero’s NYSE-listed stock fell a further 2.13% after market close on Wednesday to $0.96 apiece.