TORONTO, ON -- (Marketwired) -- 11/14/17 -- (Please note that all dollar amounts in this news release are expressed in U.S. dollars unless otherwise indicated. Refer to the Q3 2017 management's discussion and analysis ("MD&A") and financial statements for more information.)
Primero Mining Corp. ("Primero" or the "Company") (TSX: P) today reported operating and financial results for the third quarter ended September 30, 2017.
Third Quarter 2017 Operating and Financial Results
Primero produced a total of 36,602 gold equivalent ounces in Q3 2017, which compares to 44,684 gold equivalent ounces produced in Q3 2016. Gold and silver production was 33,135 ounces and 1.05 million ounces respectively in Q3 2017. The Company incurred total cash costs per gold equivalent ounce of $857 during the quarter with AISC of $1,235 per gold ounce.
During the third quarter of 2017 San Dimas continued to implement its production ramp-up plan following the strike action taken by unionized employees which concluded in Q2 2017. The production ramp-up experienced significant delays due to persistent issues with underground equipment reliability, which impacted development rates and underground stoping activities. Further, production in July 2017 was limited due to periods of inactivity during the negotiation of the 2016 annual workers' bonus ("PTU Bonus"). Since the conclusion of these negotiations, the site has experienced an improvement in worker alignment.
San Dimas underground mining rates increased month-over-month in the third quarter of 2017, with the site meeting its target of nearly 2,000 tonnes per day run-of-mine ore in September - the highest monthly average achieved in 2017.
Gold equivalent production in the third quarter of 2017 totalled 20,537 ounces which consisted of 17,070 gold ounces and 1.05 million silver ounces. This compares to 28,454 gold equivalent ounces produced in Q3 2016. Realized head grades in the third quarter of 2017 were 4.78 grams per tonne of gold and 301 grams per tonne of silver, approximately 30% higher for both than in the third quarter of 2016. The increased head grades were the result of a specific mining focus on production from the high-quality veins at San Dimas. However, this did not fully offset the lower availability of run-of-mine ore during Q3 2017 resulting from reduced equipment reliability and low worker motivation during the negotiations for the annual bonus. Mill throughput was also negatively impacted by plant reliability issues at the end of the quarter which saw a build up of 'run of mine' ore stockpiles ahead of the crushing plant. This material will be consumed in Q4 2017. The San Dimas plant milled an average of 1,246 tonnes per day throughput in Q3 2017, compared to 2,104 tonnes per day in Q3 2016.
Total cash costs on a gold-equivalent and by-product basis in the third quarter of 2017 were $884 and $799 per ounce, respectively, compared with $865 and $731 per ounce, respectively, in the third quarter of 2016. The increased unit costs were a result of the lower production rates in the current quarter and higher operating costs incurred during the ramp-up of the San Dimas operations. All-in sustaining costs per gold ounce were $1,117 per ounce in the third quarter of 2017, compared to $1,080 per ounce in the third quarter of 2016, higher mainly as a result of lower production levels. Sustaining capital expenditures were focused on underground development ($3.6 million) and drilling ($1.1 million).
The Black Fox mine produced 16,065 ounces of gold5 in the third quarter of 2017 compared to 16,230 ounces in the third quarter of 2016. Underground mining in Q3 2017 remained focused on production from the Deep Central Zone, with underground gold grades averaging 5.84 grams per tonne, a 13% increase from third quarter of 2016. The Black Fox underground mine averaged 681 tonnes per day of high-grade ore production in Q3 2017.
During the quarter, 119,862 tonnes from the low-grade stockpile were processed through the mill. The low-grade stockpile was fully depleted in September and the Black Fox operations successfully transitioned to underground only production. Concurrently, the Black Fox mill implemented a reduced milling schedule to operate on a 7-days on, 7-days off basis.
Mill throughput averaged 1,984 tonnes per day in the third quarter of 2017, compared to 2,538 tonnes per day in the third quarter of 2016. Mill throughput in Q3 2017 was affected by the depletion of the low-grade stockpile and the subsequent implementation of the reduced milling schedule. Improved head grade of 2.85 grams per tonne, compared to 2.29 grams per tonne in the third quarter of 2016, were driven by an increased contribution of high-grade underground ore which helped to offset the reduced throughput rates.
Total cash cost per gold ounce were $797 in the third quarter of 2017, 14% lower than the $926 per ounce achieved in the third quarter of 2016. Total operating costs were lower in the third quarter of 2017 compared to the same period in 2016 due to lower labour, contractor, and consumable costs associated with lower volumes. These cost reductions drove the decreased total cash costs on per gold ounce basis, despite similar production levels achieved in the third quarters of 2017 and 2016. All-in sustaining costs of $1,099 per ounce in Q3 2017 were 15% lower than the $1,286 per ounce in the third quarter of 2016 due to reduced capital and operating expenditures, despite similar gold production. Capital expenditures were lower in Q3 2017 mainly due to lower underground development rates and other sustaining capital costs. Significant development costs were incurred in the third quarter of 2016 as Black Fox worked to complete the access ramp to the Deep Central Zone.
On August 10, 2017 Primero announced the sale of the Black Fox Complex and associated assets to McEwen Mining Inc. ("McEwen"). The transaction was completed on October 6, 2017 for total consideration of approximately $32.5 million following a closing net working capital adjustment of $2.5 million. This includes approximately $27.5 million in cash proceeds and the pending release of $5.0 million from restricted cash that was pledged towards environmental closure liabilities, which were assumed by McEwen. The full proceeds, net of amounts to cover closing costs, from the sale of the Black Fox Complex will be applied to the outstanding balance on the Company's RCF with the $27.5 million being a permanent reduction to the available credit under the RCF.
As part of the sale agreement, Primero retained ownership of all doré poured prior to the end of September 30, 2017. Therefore, the year-to-date production represents the full metal attributable to Primero from the Black Fox mine.
Primero generated $23.6 million of revenue in Q3 2017, 35% lower than in Q3 2016 as a result selling 33% less gold equivalent ounces from San Dimas, noting that Black Fox has been classified as discontinued operations under IFRS (as a result of it being classified as held for sale). In Q3 2017, the Company sold 15,127 ounces of gold from San Dimas at an average realized price of $1,288 per ounce and 0.96 million ounces of silver at an average realized price of $4.32 per ounce. Revenue in Q3 2016 totalled $36.6 million from selling 21,840 ounces of gold from San Dimas at an average realized price of $1,335 per ounce, and 1.21 million ounces of silver at an average realized price of $6.12 per ounce.
All silver sold was delivered to Wheaton Precious Metals International Ltd. ("WPMI") under the silver purchase agreement6. The threshold limit under the silver purchase agreement for the 2017 contract year (August 6 of a year to August 5 of the following year) is 6.0 million ounces of silver. The threshold was not exceeded for the year-ended August 5, 2017. As of September 30, 2017, the Company has delivered 0.64 million ounces of silver towards the current annual threshold.
The Company recognized a net loss of $7.6 million in Q3 2017 compared to a net loss of $11.7 million in Q3 2016. Impairment charges of $5.0 millionfor the Black Fox Complex were associated with the terms of the definitive sales agreement and impact of changes in the carrying value of the Black Fox business segment during the quarter. Adjusted net income was $1.8 million ($0.01 per share) for Q3 2017, compared to adjusted net loss of $7.9 million ($0.04 per share) for Q3 2016. Adjusted net income primarily excludes the asset impairments, net tax impact of foreign exchange rate changes on deferred tax balances, and the mark-to-market gain/loss on the convertible debenture and warrants.
Primero generated operating cash flow before working capital changes during Q3 2017 of $13.5 million ($0.07 per share). This compares to operating cash flow of $5.5 million ($0.03 per share) in Q3 2016.
The Company's cash position as of September 30, 2017 was $14.9 million, and as of October 31, 2017 was approximately $22 million.
As at September 30, 2017 the Company's RCF was fully drawn down by $75 million. The total proceeds from the sale of the Black Fox Complex is being applied to the RCF. Of the $27.5 million in cash proceeds, $25.0 million was applied to the outstanding balance on the RCF upon closing of the Black Fox sale, permanently reducing the RCF. The remaining $2.5 million was retained to cover transaction costs, and once all transaction costs have been settled, the unused portion will also be applied to the RCF, also permanently reducing the RCF. The $5.0 million of restricted cash pledged towards environmental closure liabilities once released will be applied to pay down the outstanding balance of the RCF, but will not permanently reduce the available credit.
The Company received VAT refunds from the SAT of $4.6 million during Q3 2017. In October 2017, a further $10.6 million of VAT refunds were received. As at September 30, 2017 there were $30.9 million in VAT and $22.3 million in income tax receivables outstanding relating to Primero Empresa Minera, S.A. de C.V..
Despite efforts to reduce costs and sell non-core assets, there is no certainty that Primero will have sufficient funds to repay the full outstanding obligation under the RCF on November 23, 2017. If needed to allow a strategic solution to be completed, the Company would seek to extend the RCF maturity date. Any extension will likely require the consent of WPM as guarantor of the RCF. As there can be no certainty that this extension will be granted, the Company is considering available alternatives to protect value and sustain operations while enabling the Company to restructure its affairs.
Strategic Review Update
As previously announced, the Company's Board of Directors initiated a strategic review process in early 2017 to explore alternatives to improve shareholder value. As part of this process the Company completed the sale of the Black Fox Complex on October 6, 2017. After closing net working capital adjustments and release of cash collateral previously securing environmental closure liabilities, Primero expects to receive total consideration of $32.5 million. The net amount received is being applied to the Company's RCF with all amounts other than the cash collateral amount being a permanent reduction of the RCF.
Primero has received proposals from interested parties regarding a potential acquisition of the San Dimas operation. All proposals received require a revision of the SPA with WPM. Discussions are now focused on the distribution of potential proceeds among stakeholders. The Company's RCF matures on November 23, 2017 and any extension will likely require the consent of WPM as guarantor of the RCF. There can be no certainty that these discussions will result in a resolution acceptable to all stakeholders.
Conference Call Cancelled
The Company has cancelled the conference call previously scheduled for today.
This release should be read in conjunction with Primero's third quarter 2017 financial statements and MD&A report on the Company's website, www.primeromining.com, in the "Financial Reports" section under "Investors", or on the SEDAR website at www.sedar.com, or on the Edgar website www.sec.gov.
(1) Adjusted net income (loss) and adjusted net income (loss) per share are non-GAAP measures. Neither of these non-GAAP performance measures has any standardized meaning and is therefore unlikely to be comparable to other measures presented by other issuers. The Company believes that, in addition to conventional measures prepared in accordance with GAAP, the Company and certain investors use this information to evaluate the Company's performance. Accordingly, it is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Refer to the third quarter 2017 MD&A for a reconciliation of adjusted net income (loss) to reported net income (loss).
(2) "Gold equivalent ounces" include silver ounces produced, and converted to a gold equivalent based on a ratio of the average commodity prices realized for each period. The ratio for the third quarter 2017 for San Dimas was based on realized prices of $1,288 per ounce of gold and $4.32 per ounce of silver.
(3) Total cash costs per gold equivalent ounce and total cash costs on a by-product basis are non-GAAP measures. Total cash costs per gold equivalent ounce are defined as cost of production (including refining costs) divided by the total number of gold equivalent ounces produced. Total cash costs on a by-product basis are calculated by deducting the by-product silver credits from operating costs. The Company reports total cash costs on a production basis. In the gold mining industry, these are common performance measures but do not have any standardized meaning, and are non-GAAP measures. The Company follows the recommendations of the Gold Institute standard. The Company believes that, in addition to conventional measures, prepared in accordance with GAAP, certain investors use this information to evaluate the Company's performance and ability to generate cash flow. Accordingly, it is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. See the third quarter 2017 MD&A for a reconciliation of total cash costs to reported operating expenses (the nearest GAAP measure).
(4) The Company, in conjunction with an initiative undertaken within the gold mining industry, has adopted an all-in sustaining cost non-GAAP performance measure that the Company believes more fully defines the total cost associated with producing gold; however, this performance measure has no standardized meaning. Accordingly, it is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. The Company reports this measure on a gold ounces produced basis. For the purposes of calculating all-in sustaining costs at individual mine sites, the Company does not include corporate general and administrative expenses. Corporate general and administrative expenses are included in the computation of all-in sustaining costs per consolidated gold ounce. Refer to the Company's third quarter 2017 MD&A for a reconciliation of all-in sustaining costs per gold ounce.
(5) Black Fox is subject to a gold purchase agreement. According to the gold purchase agreement, Sandstorm is entitled to 8% of production at the Black Fox mine and 6.3% at the Pike River property.
(6) According to the silver purchase agreement between the Company and WPM, until August 6, 2015 Primero delivered to WPM a per annum amount equal to the first 3.5 million ounces of silver produced at San Dimas and 50% of any excess at $4.12 per ounce (increasing by 1% per year). Thereafter Primero will deliver to WPM a per annum amount equal to the first 6.0 million ounces of silver produced at San Dimas and 50% of any excess at $4.20 per ounce (increasing by 1% per year). The Company will receive silver spot prices only after the annual threshold amount has been delivered.
Primero Mining Corp. is a Canadian-based precious metals producer that owns 100% of the San Dimas gold-silver mine and the Cerro del Gallo gold-silver-copper development project in Mexico.
Primero's website is www.primeromining.com.
CAUTIONARY NOTE ON FORWARD-LOOKING INFORMATION
This news release contains "forward-looking statements", within the meaning of applicable Canadian and U.S. securities legislation, concerning the business and operations of Primero Mining Corp. and its consolidated subsidiaries (collectively, "Primero" or the "Company"). All statements, other than statements of historical fact, are forward-looking statements. Generally, forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "are planned", "expects", "is expected", "believes", "forecast", "estimated", "potential", "pending", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "will", "will implement", "will allow", "will lead to", "to ensure" or similar statements or the negative connotation thereof. Forward-looking information is also identifiable in statements of currently occurring matters which may continue in future, such as "is being", "is currently", "allows/allowing for", "will advance" or "continues to" or other statements that may be stated in the present tense with future implication.
Forward-looking statements in this news release include, but are not limited to, statements regarding: the success and long-term profitability of the San Dimas operations; the continuing efforts to reduce the complexity and costs of the Company's operations; planned investments in development and exploration, the impact of reduced exploration and capital spending or the failure to identify new large veins on the ability to achieve expected mining rates and production in future; the potential for continued labour disruption; the ability of the Company to grow its reserves and resources and achieve a competitive cost structure; the level and timing of gold equivalent production at San Dimas; the Company's annual production and cash cost guidance; the realization of silver sales at spot prices;the expectation to receive the $5 million of restricted cash associated with environmental liabilities for the Black Fox Complex; the Company's expectation to receive VAT refunds or corporate tax refund of Mexican tax instalments paid; the ability of the Company to reduce, repay, extend or refinance its credit facility; the ability of the Company's strategic review process to improve stakeholder value including through potential divestiture or amendments to the Wheaton Precious Metals' silver purchase agreement and the ability of such process to achieve resolutions acceptable to stakeholders; the estimated price of gold and silver anticipated to be received for the Company's sales of gold and silver; the potential for the Company to require additional funding; and the Company's intentions to become an intermediate gold producer.
The assumptions made by the Company in preparing the forward-looking information contained in this news release, which may prove to be incorrect, include, but are not limited to: the expectations and beliefs of management; the specific assumptions set forth above in this news release; that the Company will be able to realize productivity improvements, cost reductions, and return to profitability at its San Dimas operations; that the Company will be able to reduce the scale and complexity of the San Dimas mine, generate positive cash flow and operate the mine in accordance with mine plans; that there are no other significant disruptions affecting operations; that the Company is able to meet its development and exploration plans; that the Company will achieve production and cash costs within its 2017 guidance; that the Company will be able to obtain the $5 million of restricted cash associated with environmental liabilities for the Black Fox Comples; that the Company will be able to reduce, repay, extend or refinance its debt; that the Company's strategic review process will identify a transaction the at will allocate the value of proceeds in a way that is acceptable to all stakeholders; that the Company will be able to achieve amendments to the Wheaton Precious Metals' silver purchase agreement or other strategic changes that will enable the San Dimas mine to be sold or operate profitably; that the exchange rate between the Canadian dollar, Mexican peso and the United States dollar remain consistent with current levels; that prices for gold and silver remain consistent with the Company's expectations; that there are no material variations in the current tax and regulatory environment; that the Company will receive refunds of Mexican VAT and income tax as entitled; that the political environment within Mexico and Canada will continue to support the development of environmentally safe mining projects.
Forward-looking statements are subject to known and unknown risks, uncertainties and other important factors that may cause the actual results, performance or achievements of Primero to be materially different from those expressed or implied by such forward-looking statements, including: the Company may not be able to achieve productivity improvements, cost reductions, planned production levels or generate significant free cash flow; the Company may be required to change its mining or development and exploration plans, or may not be able to comply with such plans, or such plans may not result in the discovery of mineralization in minable quantities, or in sufficient quantities to support future mining rate or production expectations; the exchange rate between the Canadian dollar, the Company may not receive its Mexican VAT or income tax refunds in due course; the Company's strategic review process may not result in changes that improve value for the Company's stakeholders; the Mexican peso and the United States dollar may change with an adverse impact on the Company's financial results; that the Company may not be able to resume mine operations at planned capacity or implement its phased restart of the San Dimas operation; that the Company may not be able to reduce, repay, extend or refinance its outstanding debt, or secure other sources of funding; the Company may not be able to obtain WPM's agreement to support the extension of the credit facility on acceptable terms; the Company may fail to identify a transaction the at will allocate the value of proceeds in a way that is acceptable to all stakeholders. Certain of these factors are discussed in greater detail in Primero's registration statement on Form 40-F on file with the U.S. Securities and Exchange Commission, and its most recent Annual Information Form on file with the Canadian provincial securities regulatory authorities and available at www.sedar.com.
Should one or more of these risks and uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in forward-looking statements. In addition, although Primero has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.
Forward-looking statements are made as of the date hereof and accordingly are subject to change after such date. Forward-looking statements are provided for the purpose of providing information about management's current expectations and plans and allowing investors and others to get a better understanding of our operating environment. Primero does not undertake to update any forward-looking statements that are included in this document, except in accordance with applicable securities laws.
SUMMARIZED FINANCIAL AND OPERATING RESULTS AND FINANCIAL STATEMENTS FOLLOW
For further information, please contact:
Tel: (416) 814 3160
Source: Primero Mining Corp.