Primero’s fall from grace accelerates on San Dimas ramp-up delay

VANCOUVER (miningweekly.com) – Precious metals producer Primero Mining’s proverbial fall from grace is near complete with the company once more trading in penny stock territory since early September – a level last seen in 2009 and a far cry from its peak at C$8.89 a share in July 2014.

The Toronto-based company’s NYSE- and TSX-listed equities have been on a steady downward spiral for several years, dogged by operational challenges at San Dimas, in Mexico, a tax dispute with Mexican authorities and concerns regarding the company's liquidity position.

On Thursday, the company announced that, despite a recent improvement in San Dimas operations, it has not seen the full step increase in productivity that underpinned the 2017 restart plan. Impacted by a near two-month strike while negotiating negotiation of the 2016 annual workers' bonus, and a further 13-day suspension of milling activities in June, the expected ramp-up in production has been significantly delayed due to persistent issues with underground equipment reliability, which impacted on development rates and underground stoping activities.

Because of the operational challenges at the site, Primero expects to apply revised operating assumptions, including higher cut-off grades and revised cost structures and metals prices, when it evaluates its year-end 2017 mineral reserves and resources. The company does not expect to replace 2017 mining depletion, owing to these factors and the recent cash conservation, which has limited the site's ability to conduct exploration drifting and drilling.

Primero advised that it had lowered its 2017 San Dimas production guidance to between 75 000 oz and 85 000 oz of gold equivalent (GEOs), at total cash costs of between $800/oz and $900/oz of GEOs. All-in sustaining costs (AISC) are now expected rise to between $1 050/oz and $1 150/oz of gold. San Dimas produced 113 968 GEOs in 2016, comprising 93 881 oz of gold and 5.3-million ounces of silver, at a total cash cost of $856/GEO and an AISC of $1 117/oz gold.

As a result, Primero narrowed its guidance to reflect a more gradual restart of the San Dimas operations and the pending $5-million sale of the Black Fox Complex, in Ontario, to McEwen Mining. Primero now expects consolidated 2017 output of between 125 000 GEO and 135 000 GEO, at total cash costs of between $800/GEO and $900/GEO, with an AISC of between $1 200/oz and $1 300/oz gold. This compares with a previous guidance of between 140 000 GEO and 170 000 GEO.

Primero expects the Black Fox transaction to close in the first week of October.

The company will continue to operate in a cash conservation mode and will limit expenditures to only core areas necessary to maintain current production levels in the near-term. Management continues to work on possible alternatives to refinance or repay its upcoming debt obligation and continues with negotiations on the potential sale of San Dimas, as well as the potential renegotiation of its silver stream with Wheaton Precious Metals.

Primero’s stock fell another 11% on the TSX on Thursday to close at C$0.085 a share.