San Dimas workers down tools as union negotiations fail

VANCOUVER (miningweekly.com) – Mining and milling operations at precious metals producer Primero Mining's San Dimas mine have come to a halt as unionised workers downed tools following a breakdown in negotiations between union leaders and the company.

Toronto-based Primero on Wednesday said it was looking to reduce the scale and complexity of the San Dimas operation to increase productivity and return the mine to positive cash flow. The company had asked the National Union of Mine, Metal, Steel and Allied Workers of the Mexican Republic to extend the negotiation period, but the union refused.

The key focus for Primero during these negotiations has been to better align the short-term bonus structure with overall mine-site performance and profitability, and to move the labour force onto a more continuous shift cycle to improve productivity. It is not seeking to reduce individual pay, but has already started to reduce the total San Dimas work force outside of the collective bargaining agreement negotiations, including contractors.

Depending on its duration, the strike could have a negative impact on the company's 2017 output and, as a result, the company has decided to postpone the release of its formal 2017 production and cost guidance until the situation has been resolved.

San Dimas produced 113 968 gold equivalent ounces (GEO) in 2016, comprising 93 881 oz of gold and 5.3-million ounces of silver, at a total cash cost of $856/GEO and all-in sustaining costs of $1 117/oz gold.

Primero did not provide detailed 2017 guidance, stating only that it expects production levels to be flat in 2017 over 2016 levels, but at lower costs, which it expects will result in improved cash flows this year.

Analysts have speculated that Primero has a strained liquidity outlook that could force it to raise capital in the current quarter, adding to the company’s risk profile.