Mr. Joseph Conway reports
PRIMERO PROVIDES 2014 BLACK FOX GUIDANCE AND ANNOUNCES APPOINTMENT OF V.P. CORPORATE RESPONSIBILITY
Primero Mining Corp. today provided 2014 production, cash cost and capital expenditure guidance for the recently acquired Black Fox complex. Primero also announces the appointment of James Mallory to the position of vice-president, corporate responsibility.
Please note that all dollar amounts in this news release are expressed in United States dollars unless otherwise indicated.
The company is hosting an investor day at 9 a.m. ET today where senior management will discuss details of each of the company's assets. Management will provide updates on its portfolio of two operating mines and its two gold development projects that, combined, position the company to increase gold production to a forecast 400,000 gold equivalent ounces (1) in 2016. A live and archived webcast will be available at the company's website.
"Black Fox represents another opportunity to create value for our shareholders," stated Joseph Conway, president and chief executive officer. "After successfully turning San Dimas around over the last three years, our technical team is well prepared to work with the experienced Black Fox team to optimize another undercapitalized underground mine. During our due diligence process we identified several opportunities where we could invest and create value at Black Fox. Primero is well capitalized and has the financial resources to invest and grow the Black Fox mine. With the acquisition of the Black Fox complex, Primero is now a diversified, below-average-cost, Americas-based gold producer with an estimated 225,000 to 245,000 gold equivalent ounces of production in 2014."
Senior management appointment
The company is pleased to announce the appointment of James Mallory as vice-president, corporate responsibility, effective March 1, 2014. Mr. Mallory will have the overall responsibility of occupational health and safety, environmental management, community relations, and risk management.
The appointment of Mr. Mallory is consistent with the company's commitment to corporate responsibility and execution of a broad-based, company-wide strategic corporate responsibility initiative, ensuring the company's business is carried out in a sustainable manner.
"I would like to welcome Jim to the senior management team at Primero. He brings extensive experience in the area of corporate responsibility, sustainability and community relations, having been involved with mining projects in Argentina, Bolivia, Canada, Chile, Peru and the United States of America. At the same time, Jim has a solid knowledge of mining operations, having been actively involved with several operating mines including being a mine general manager," stated Joseph Conway, president and chief executive officer.
Black Fox is an opportunity to create value
Primero acquired the Black Fox complex in March, 2014. The Black Fox complex is located near Timmins, Ont., and comprises the Black Fox mine; two adjacent exploration properties, Grey Fox and Pike River; and the Black Fox mill, located on the Stock Mill property.
The Black Fox mine has historically been owned by a number of undercapitalized junior gold producers. The mine had an irregular production history until 2012, when long-hole mining was introduced, and in 2013 the mine produced 98,710 ounces of gold.
As a result of the commodity price decline and the previous owner's lack of financing, the Black Fox mine was undercapitalized in the second half of 2013, resulting in lower underground production due to insufficient underground development, definition and delineation drilling. This resulted in lower-than-anticipated first-quarter 2014 production results. Primero is well capitalized and has the technical expertise required to invest sufficiently in underground development and exploration, while still focusing on cost control, mine productivity and exploring the depth potential of the Black Fox mine. With the increased investment planned by Primero, management is confident the mine can return to operating at third-quarter 2013 production levels within a six-month period.
In 2014 Primero will increase exploration and delineation drilling and exploration drifting at Black Fox in order to open new mining faces and expand underground production. Additional underground equipment will be acquired in 2014 to increase productivity. The company has a target of producing approximately 1,000 tonnes per day from the Black Fox underground by the end of 2014.
In 2014 and beyond the company also plans to test the full lateral and depth potential of the Black Fox underground mine. Extending the depth and/or lateral extent of the known mineralization will extend the overall mine life and add value for shareholders.
The company will also be initiating a surface exploration program to drill the east and west extension of the open pit, which is currently in its third push back, with the objective of extending the open pit life.
The Grey Fox property, located four kilometres southeast of the Black Fox mine, has produced promising exploration results and already contains 500,000 ounces at 3.7 grams per tonne of gold mineral indicated resources. Primero raised $9-million in March, 2014, in a flow-through financing in order to invest in an aggressive exploration program at the Grey Fox and surrounding properties.
2014 Black Fox production guidance
In 2014 Primero expects attributable production from the Black Fox mine to be between 70,000 ounces of gold and 80,000 ounces of gold, following its acquisition on March 5, 2014. Attributable cash costs for Black Fox in 2014 are expected to be in the range of $850 per ounce to $900 per ounce.
This results in Primero's total expected attributable production in 2014 of between 225,000 gold equivalent ounces and 245,000 gold equivalent ounces. Primero's attributable cash costs (2) for 2014 are expected to be in the range of $650 per gold equivalent ounce to $700 per gold equivalent ounce.
Primero's 2014 updated production outlook is summarized in the table.
Black Fox San Dimas Total
Attributable gold
equivalent production (1)
(gold equivalent ounces) 70,000-80,000 155,000-165,000 225,000-245,000
Gold production (ounces) 70,000-80,000 115,000-125,000 185,000-205,000
Silver production (4)
(million ounces) - 6.25-6.50 6.25-6.50
Total cash costs (2), (3)
(per gold equivalent
ounce) $850-$900 $575 - $600 $650-$700
All-in sustaining
costs (2), (3) (per gold
ounce) $1,300-$1,400 $950-$1,050 $1,100-$1,200
Material assumptions used to forecast total cash costs for 2014 include an average gold price of $1,200 per ounce, an average silver price of $7.96 per ounce (calculated using the silver purchase agreement contract price of $4.16 per ounce and assuming excess silver beyond contract requirements is sold at an average silver price of $21 per ounce), and foreign exchange rates of $1.07 (Canadian) and 13 Mexican pesos to the U.S. dollar.
2014 Black Fox capital expenditure guidance
Capital expenditures at the Black Fox complex during 2014 are expected to be approximately $31.2-million excluding capitalized exploration costs of $16.8-million. This results in total Primero capital expenditures in 2014 of $80.0-million excluding capitalized exploration costs of $35.0-million.
Capital expenditures Estimated 2014
San Dimas underground development $ 14.7-million
San Dimas sustaining capital $ 11.8-million
San Dimas projects $ 11.8-million
San Dimas subtotal $ 38.3-million
Black Fox underground development $ 7.6-million
Black Fox open pit capital stripping $ 3.3-million
Black Fox sustaining $ 10.7-million
Black Fox projects $ 8.3-million
Grey Fox development studies $ 1.3-million
Black Fox subtotal $ 31.2-million
Cerro del Gallo development $ 10.4-million
Total $ 80.0-million
Underground development at Black Fox in 2014 will be focused on both the West and the East zones. In the West zone, development of the B zone is planned, with a plan to open two concurrent mining faces. In the East zone, development is planned to advance east on the 520 and 540 levels. Drilling in the Central zone continues to be positive and will be included in the near-term mine plan due to its close proximity to existing infrastructure.
The company's 2014 capital expenditures include investments in the Black Fox mill and tailings pond in order to optimize recoveries, optimize water management and increase the tailings capacity.
2014 exploration plan
Primero is focused on investing in exploration at Black Fox in order to extend the known mineralization both laterally and at depth. Comparable regional underground mines extend to an average depth of 1.6 kilometres, while the Black Fox deposit is currently only defined to a depth of 500 metres.
The company's 2014 $16.8-million exploration plan at the Black Fox complex includes over 132,000 metres of diamond drilling. This is significantly greater than the drilling completed over the last few years.
Exploration drifting will include opening the 500 level in the East zone. This drift is designed so that underground drilling can test for the extension of the mine at depth across the strike length of the property.
Primero is also assessing the expansion opportunity of the open pit, currently in its third push back. Drilling from surface is planned to test for potential east and west extensions of the current pit. Drilling will be completed in 2014 to determine if a fourth push back of the open pit is possible or whether the near-surface material will be mined from underground.
Drilling of 76,400 metres is planned at the Grey Fox, Pike River and Stock Mill properties. The Grey Fox exploration program includes exploration, delineation and some condemnation drilling. The company aims to increase the total defined mineral resources and convert inferred mineral resources to the measured and indicated categories at Grey Fox. The Pike River and Stock Mill properties include a total of 15,400 metres of regional exploration drilling.
Capitalized exploration expenditures Metres Estimated 2014
San Dimas diamond drilling 60,000 $ 5.4-million
San Dimas drifting 2,500 $ 5.9-million
San Dimas regional diamond drilling 20,000 $ 3.5-million
Ventanas regional diamond drilling 4,100 $ 0.9-million
San Dimas subtotal $ 15.7-million
Black Fox diamond drilling 55,700 $ 7.7-million
Grey Fox and regional exploration 76,400 $ 9.1-million
Black Fox complex subtotal $ 16.8-million
Cerro del Gallo diamond drilling 10,000 $ 2.5-million
Total 226,200 $ 35.0-million
Black Fox 2013 mineral reserves and mineral resources
The 2013 black fox mineral reserves and mineral resources as published in the company's annual information form were not updated with any drilling information from 2011, 2012 or 2013. They are the mineral reserves and mineral resources estimated for Black Fox at Oct. 31, 2010, updated to reflect depletion from production from the end of October to Dec. 31, 2010, and from Dec. 31, 2010, to Dec. 31, 2011; Dec. 31, 2011, to Dec. 31, 2012; and Dec. 31, 2012, to Dec. 31, 2013.
The company expects to release updated mineral reserves and mineral resources for Black Fox, including recent drill data, by July, 2014.
BLACK FOX ESTIMATED GOLD PROVEN AND PROBABLE MINERAL RESERVES,
AS OF DEC. 31, 2013
Proven reserves Probable reserves
Gold Gold
grade Gold grade Gold
Tonnes (g/t) (oz) Tonnes (g/t) (oz)
Open pit 1,457,000 3.9 182,000
Underground 2,305,000 6.1 452,900
Stockpile 707,449 1.1 25,900
Total 707,449 1.1 25,900 3,762,000 5.2 634,900
Proven and probable reserves
Gold
grade Gold
Tonnes (g/t) (oz)
Open pit 1,457,000 3.9 182,000
Underground 2,305,000 6.1 452,900
Stockpile 707,449 1.1 25,900
Total 4,469,000 4.6 660,800
BLACK FOX ESTIMATED GOLD MEASURED AND INDICATED MINERAL RESOURCES,
INCLUDING RESERVES, AS OF DEC. 31, 2013
Measured resource Indicated resource
Gold Gold
grade Gold grade Gold
Tonnes (g/t) (oz) Tonnes (g/t) (oz)
Open pit 1,838,500 4.3 252,383
Underground 2,396,200 7.1 544,259
Stockpile 707,449 1.1 25,900
Total 707,449 1.1 25,900 4,234,673 5.9 796,642
Measured and indicated
resources
Gold
grade Gold
Tonnes (g/t) (oz)
Open pit 1,838,500 4.3 252,383
Underground 2,396,200 7.1 544,259
Stockpile 707,449 1.1 25,900
Total 4,942,149 5.2 822,542
BLACK FOX ESTIMATED GOLD INFERRED MINERAL RESOURCES AS OF DEC. 31, 2013
Inferred resources
Gold grade Gold
Tonnes (g/t) (oz)
Open pit 105,180 4.0 13,672
Underground 165,808 5.7 30,500
Total 270,988 5.1 44,172
1. The average gold grade for proven and probable reserves is adjusted for
dilution while measured and indicated resources is not. Contained metal
in estimated reserves remains subject to metallurgical recovery losses.
2. Black Fox reserves and resources are based on $1,150 (U.S.) per ounce Au
for 88 per cent of production and $500 (U.S.) per ounce Au for gold sold
through the gold stream agreement from the Black Fox technical report
prepared by Tetra Tech dated January, 2011. The Black Fox open pit reserves
and resources are reported at a 0.88 g/t cut-off, and the underground
reserves and resources are reported at a 2.54 g/t cut-off. Estimated Black
Fox reserves and resources are shown as at Dec. 31, 2013, net of mining
depletion from the January, 2011, independent technical report.
3. Paul Daigle, PGeo, of Tetra Tech, is the qualified person who updated
the Black Fox mine mineral resource estimates in the Black Fox
technical report, and Dan Sweeney, PEng, of Tetra Tech, is the
qualified person who reviewed the Black Fox mineral reserves estimates
in the Black Fox technical report.
(1) 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 used for the 2014 guidance projection is 151:1 based on estimated average prices of $1,200 per ounce of gold and $7.96 per ounce of silver.
(2) Total cash costs per gold equivalent ounce on a co-product basis and total cash costs per gold ounce on a byproduct basis are non-GAAP (generally accepted accounting principles) measures. Total cash costs per gold equivalent ounce are defined as costs of production (including refining costs) divided by the total number of gold equivalent ounces produced. Total cash costs per gold ounce on a byproduct basis are calculated by deducting the byproduct silver credits from operating costs and dividing by the total number of gold ounces produced. 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. As such, they are unlikely to be comparable with similar measures presented by other issuers. In reporting total cash costs per gold equivalent and total cash costs per gold ounce on a byproduct basis, the company follows the recommendations of the Gold Standard Institute. 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. Refer to the company's 2013 management discussion and analysis for a reconciliation of cash costs per gold ounce on both a byproduct and gold equivalent basis to reported operating expenses (the most directly comparable GAAP measure).
(3) 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. Refer to the company's 2013 management discussion and analysis for a reconciliation of all-in sustaining costs per gold ounce.
(4) According to the silver purchase agreement between the company and Silver Wheaton Corp., until Aug. 6, 2014, Primero will deliver to Silver Wheaton a per-annum amount equal to the first 3.5 million ounces of silver produced at San Dimas and 50 per cent of any excess at $4.16 per ounce (increasing by 1 per cent per year). Thereafter Primero will deliver to Silver Wheaton a per-annum amount equal to the first 6.0 million ounces of silver produced at San Dimas and 50 per cent of any excess at $4.20 per ounce (increasing by 1 per cent per year). The company will receive silver spot prices only after the annual threshold amount has been delivered.
We seek Safe Harbor.
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